JPY Surges Amid Fears The BOJ Will Disappoint
Swissquote Bank Ltd | Jul 26, 2016 03:49AM ET
Market Brief
It was a quite start into the week given the very light economic calendar. Most currency pairs were trading water during the first day of the week with EUR/USD trading between 1.0960 and 1.10. The single currency reacted feebly to the better-than-expected IFO business climate, which fell to 108.3 in July (107.5 consensus) from 108.7 in the previous month. The lower read suggests that German company managers anticipated the negative effects of the Brexit vote on the German economic prospect. On the bright sight, assessments of the current situation improved somewhat to 114.7 from 114.6, beating median forecast of 114, showing that the managers a quite happy of the resilience of the German economy.
On Tuesday, the greenback reversed last Friday’s gains as investors returned to risky assets. EUR/USD picked up to 1.1021 in Tokyo as traders got rid of their long dollar positions. The currency pair is currently testing the bottom of its multi-month upward channel at around 1.0950 but it seems that a break to the downside is not for now yet.
The Japanese yen rose sharply in overnight trading as investors feared the BoJ could under deliver at it next monetary policy meeting on Friday. USD/JPY collapsed 1.55% to 104.30 after hitting 107.49 last Thursday. The yen will remain very sensitive to rumours and change in market sentiment as we are getting closer to Friday decision. For now, the market is rather believing the BoJ will disappoint again but there is a significant chance it could reverse completely, pushing the yen lower. Be ready for some wild swings.
In spite of smaller-than-expected trade surplus (NZ$127m versus 150m expected and 348m previous), the New Zealand dollar jumped sharply against the greenback, up 0.68% to $0.7045. The fresh boost came on the back of encouraging figures from the export side. Indeed, dairy exports rose 13.6%m/m, crude oil increased 83.8%m/m after contracting 25.2% in May, finally fruit export held steady by rising 7.6%m/m. On a year over year basis, exports rose 2.6% and imports contracted 4.6% in the month of June. In spite of this positive boost to the Kiwi, we’d rather remain cautious, especially as the RBNZ is expected to provide fresh stimulus. On the downside, a support lies at 0.6952 (low from July 21st), while on the upside a resistance can be found at 0.7095 (Fibonacci 38.2% on July’s debasement).
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Today traders will be watching PPI from Spain and Sweden; Case-Schiller index, Markit services and composite PMI, consumer confidence index, Richmond Fed manufacturing index and new homes sales from the US.
Currency Tech
EUR/USD
R 2: 1.1428
R 1: 1.1186
CURRENT: 1.1006
S 1: 1.0913
S 2: 1.0822
GBP/USD
R 2: 1.3981
R 1: 1.3534
CURRENT: 1.3073
S 1: 1.2851
S 2: 1.2798
USD/JPY
R 2: 109.14
R 1: 107.90
CURRENT: 104.25
S 1: 103.91
S 2: 99.02
USD/CHF
R 2: 1.0328
R 1: 0.9956
CURRENT: 0.9855
S 1: 0.9764
S 2: 0.9685
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