USDJPY – Japanese intervene on the fx

After a failed attempt from the BoJ to weaken the yen with more quantitative easing, the Ministry of Finance decided to intervene on the market for the first time in 6 years. The intervention was anticipated but the timing was uncertain and thus it lifted the pair from a fresh 15-years low of 82,86 to the first key resistance – 85,20. The timing of the move seems logical – there was some delay from the last BoJ’s move and the pair might be supported by a slightly upbeat US data.

Technically, a signal for a larger and lasting move would be given by a breach of the 4-month declining channel. Resistances are also located at 85,20 and 85,93. Moreover, reactions to the US data due today may indicate if there is some short-term upside potential left. Anyway, a decline on the USDJPY seemed exaggerated and a rebound in a longer-term seems logical unless there is a significant deterioration in the US economy.   

EURUSD – up despite a downbeat data

The euro continued to gain for the second day despite some downbeat figures from the euro zone. The industrial output was flat in July and the German ZEW (investors’ sentiment) fell to the lowest level since Feb 09 – the fifth consecutive fall. The question is, if that’s the reason to worry keeping in mind a positive momentum in the Ifo (economic climate index) index? We had a similar situation in 2006-07 when the ZEW was declining since May of 2006 while the Ifo continued to increase until the mid-07. One could argue the ZEW provided an early signal ahead of the crisis, however with a little use for investors. The second half of 2006 and the first of 2007 saw a robust rally on the German equity market peaking along with the Ifo. Thus the negative ZEW shouldn’t hurt European equities ot the euro substantially.

For the EURUSD it was the key to move above a resistance of 1,2920 which marked an end of a monthly consolidation and opened the way to 1,3027 which the pair took advantage of. While some short-term profit taking is possible, the pair might well continue to advance, eyeing August’s high of 1,3334. To do so, the pair needs to move above resistances at 1,3027 and an upper line of the widening triangle. Supports are provided by 1,2920 and a lower line of the triangle, currently as low as 1,27.

GOLD – fresh historical highs

Gold prices negated a strong negative technical formation (read more) and recorded a fresh historical high at 1274 USD. Such a decisive move may suggest some further mid-term upward potential on the gold market. Nevertheless we think that given some fundamental warnings (mixed jewelry demand, plenty of advertisements of the gold funds), the gold deserves at least a large correction. However, one needs the price of gold to fall below a lower line of the 2-years channel as a sign of confirmation.

Events to watch – US output and activity, UK labor market

US data on activity (NY Fed, 8.30 CET, 14.30 CET, +8,5 expected) and output (9.15 ET, 15.15 CET, consensus +0,2% m/m) make a top of the list of economic releases today. A reaction on the USDJPY will be important to judge a short-term potential. The data may also affect AUD and the CAD – currencies that gained on yesterday’s move on the EURUSD and last week’s domestic releases. During the European trade, GBP investors will watch the claimant count release (4.30 ET, 10.30 CET, consensus at -2,5k).

Przemysław Kwiecień, Chief Economist

Disclaimer, investment risk warning
X-Trade Brokers Dom Maklerski S.A. does not take responsibility for investment decisions made under the influence of the information published on this website. more