Daily FX Market Outlook by AceTrader-5-8-2011

Market Review – 04/08/2011 22:38 GMT

Yen tumbles on BoJ intervention

The Japanese yen fell broadly against the greenback and other currencies on Thursday as Bank of Japan sold its currency to stem the yen’s recent strength. The single currency tumbled sharply in NY morning as ECB President Jean-Claude Trichet said the ECB has resumed its bond-buying programme amid growing fears of EU debt crisis.

   
  
Versus the Japanese yen, the greenback rallied sharply from 77.00 to 80.25 as the BoJ intervened unilaterally in the currency market in Asian and European sessions to weaken its currency by selling an estimated one trillion yen ($12.5 billion) against other counterparts. However, the pair retreated on long liquidation to 78.67 in NY midday after the release of U.S jobless claims data (400K vs the forecast of 405K and the previous revised reading of 401K) and then recovered in NY afternoon.   
  
In other news, BoJ decided to ease monetary policy further and kept the overnight call rate target unchanged at 0-0.1% by unanimous vote. BoJ also expanded its asset-purchase fund to 15 trillion yen from 10 trillion yen and increased a credit facility by 5 trillion yen to 35 trillion yen. The overnight call rate target remained at 0-0.1% by unanimous vote  
  
Although the single currency climbed above Wednesday’s NY high of 1.4345 to 1.4370 in Australian morning, the pair retreated sharply to 1.4266 at Europe open on dollar’s broad-based strength due to BoJ’s solo intervention. Later, despite euro’s recovery to 1.4331 due to cross buying of euro vs gbp, the single currency fell sharply to 1.4112 in NY morning after euro-negative comments from ECB President Jean-Claude Trichet together with the selloff of U.S. and European stocks market. The single currency later dropped further to 1.4098 near NY closing. Active cross selling of euro also pressured the single currency as eur/jpy and eur/chf retreated sharply from 114.15 to 111.29 and from 1.1139 to 1.0820 respectively.   
  
ECB President Jean-Claude Trichet held a press conference after ECB kept its benchmark interest rate at 1.5 percent and said the ECB has resumed purchases of government bonds and will offer banks more cash amid growing fears the eurozone debt crisis could engulf Italy and Spain.  
  
U.S. and European indices tumbled sharply on concerns about the global economy as DJI closed the day at 11383.68, down by 512.76 points or 4.31% and S&P tanked by 4.78%, the biggest 1-day drop since Feb 2009. FTSE 100, CAC 40, and DAX plunged by 3.43%, 3.90%, and 3.40%, respectively.  
  
The British pound extended Wednesday’s rally from 1.6251 to 1.6439 in Australia. However, cable retreated sharply in tandem with euro in Asia on dollar’s broad-based rebound due to BoJ’s intervention and dropped to 1.6287 in European morning. Despite sterling’s recovery to 1.6372 in NY morning, renewed selling pressured the pair and price fell further with euro to 1.6246 ahead of NY closing.  
  
Earlier in Europe, BoE left its key interest rate unchanged at 0.5% and maintained its 200 billion pound asset purchase programme.  
  
On the data front, German factory orders for June beat expectations, coming in at 1.8% m/m and 9.5% y/y versus forecasts of -0.5% and 6.7% respectively.  
  
Data to be released on Friday include:  
  
Japan Leading indicators, Swiss CPI, U.K. Halifax hse prices, PPI input, PPI output, PPI core, Germany Industrial prod’n, U.S. Avg. hourly earnings, Non-farm payrolls, Private Payrolls, Unemployment rate, Canada Building permits, Ivey PMI, Canada Unemployment rate, Employment change. 

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