Daily Report: Yen Lower on Risk Appetite, Aussie Boosted by Employment

Market Overview | Written by ActionForex.com | Feb 14 08 07:23 GMT |
Daily Report: Yen Lower on Risk Appetite, Aussie Boosted by Employment

The Japanese yen remains generally weak today as global equity markets rally following strength in the US stock markets. Japanese Q4 GDP rose 0.9% qoq with annualized rate at 3.7%. Both are much stronger than expectation of 0.4% and 1.5%. The report today suggests growth in Japan is still robust but two issues undermine the strength of the result. Firstly, the stronger Q4 result was somewhat inflated by lower base effect in Q3, in particular considering the second downward revision. Secondly, the GDP deflator dived further negative to -1.3% which suggests that real GDP was inflated. Other data from Japan saw industrial production rising 1.4% mom, 0.8% yoy. Capacity utilization rose from 018.4 to 110.2 in Dec. Jan machine tools orders was flat. Anyway, the yen paid little attention to the data as focus carry trade and risk appetite/aversion are still the main driver in the currency.

Aussie, on the other hand, is additionally boosted by strong employment report released overnight. Unemployment rate unexpectedly dropped to a record low of 4.1% in Jan, much better than expectation of 4.3%. Job growth rose to 26.8k, also much stronger than expectation of 15k. RBA just raised interest rates by another 25bps in early Feb 7%, a fresh 11 year high. After today's employment data, markets are rising the odds that RBA will hike again in Mar to 85%, as indicated in interest-rate swaps.

Just released, Germany GDP rose 0.7% qoq, 2.5% yoy in Q4. Focus in the European session will be on Eurozone GDP, which is expected to slow to 0.4% qoq, 2.2% yoy in Q4. Swiss ZEW will also be released and is expected to dip further from -32.7 to -35.0. Trade balance from US and Canada will be featured in the US session. But Bernanke's testimony will be the main focus.
AUD/USD Daily Outlook

Daily Pivots: (S1) 0.8908; (P) 0.8976; (R1) 0.9030; More

AUD/USD's retreat from 0.9085 was contained above 0.8914 support as expected and rebounds strongly. Intraday bias is mildly on the upside for retest of 0.9085 but firm break there is needed to confirm that recent rise from 0.8512 has resumed for 0.9398 high. Otherwise short term outlook remains neutral for the moment. Meanwhile, below 0.8914 will indicate that correction from 0.9100 is indeed still in progress for another fall below 0.8873 before completion.

In the bigger picture, rally from 0.7015 has made a medium term top at 0.9398 after failing 200% projection of 0.6773 to 0.7992 from 0.7015 at 0.9453, with bearish divergence condition in 4 hours RSI. Subsequent fall from 0.9398 is treated as correction to rise from 0.7015 and should have completed at 0.8512 already. Retest of resistance zone between 0.9398 and 0.9453 should now be seen but firm break there is needed to confirm medium term up trend has resumed.

Meanwhile, below 0.8743 cluster support (61.8% retracement of 0.8512 to 0.9100 at 0.8737) will argue that rebound from 0.8512 is probably just a correction to the corrective fall from 0.9398. In such case, deeper decline should be seen to below 0.8512 before completion the correction from 0.9398.

AUD/USD 4 Hours Chart - Forex Education, Forex Course, Forex Tutorial, Forex eBooks, Forex Training

Source : Actionforex.com

Yen Trades Near 1-Month Low Versus Dollar as Asian Stocks Rise

By Kosuke Goto and Stanley White

Feb. 14 (Bloomberg) -- The yen traded near a one-month low against the dollar and fell against South Africa's rand as Asian stocks rose, restoring confidence in buying higher-yielding assets with money borrowed from Japan.

The currency also dropped against the Australian dollar, a favorite of the so-called carry trade, after reports showed accelerating economic growth in Japan and an unexpected gain in U.S. retail sales. Federal Reserve Chairman Ben S. Bernanke testifies before the Senate Banking Committee on the economy and financial markets today.

``The yen looks set to weaken further,'' said Tsutomu Soma, a bond and currency dealer at in Tokyo Okasan Securities Co., Japan's fifth-largest broker by revenue. ``Stock market gains show investors are more comfortable with risk and that makes it easier to sell yen for carry trades.''

The yen traded at 108.27 against the dollar at 6:49 a.m. in London from 108.33 late yesterday in New York. It touched 108.38 yesterday, the weakest since Jan. 14. Against the euro, the yen was at 157.92 from 157.87. The dollar traded at $1.4572 per euro from $1.4573.

Treasury Secretary Henry Paulson will join Bernanke in testifying in Washington at 10 a.m. local time.

Asian stocks rose, sending the region's benchmark to its biggest advance in three weeks. The MSCI Asia Pacific Index added 3.7 percent and Japan's Nikkei 225 Stock Average surged the most in six years.

In carry trades, investors buy higher-yielding assets with money borrowed in countries with lower borrowing costs, such as Japan's 0.5 percent. Brazil's benchmark rate is 11.25 percent, Sweden's is 4 percent and Norway's is 5.25 percent. The strategy is considered risky because currency fluctuations can erase the profits between the borrowing and lending rates.

Source : Bloomberg.com