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Is the Japanese Yen Selloff Finally Near a Breaking Point?

By , Currency Strategist
04 February 2013 05:41 GMT

Will the Japanese Yen finally find the catalyst for a recovery as investors cast a worried eye to the looming US “sequester” spending cuts trigger deadline.

Talking Points

  • Euro, British Pound Likely to Look Past Quiet European Data Docket
  • Yen May Begin Rebound as US Fiscal Policy Jitters Spur Haven Flows
  • Australian Dollar Outperformed on China PMI Data in Asian Trade

The economic calendar is relatively quiet in European hours. UK Construction PMI is expected to tick narrowly higher to 49.2, a print in line with near-term trend averages that is unlikely to yield a significant response from the British Pound. Meanwhile, December’s Eurozone PPI report is forecast to leave the year-on-year rate of wholesale inflation unchanged at 2.1 percent, offering little guidance to the Euro ahead of the ECB rate decision due later in the week.

The lull in data-linked event risk may open the door for traders to begin considering the “sequester” spending cuts due to trigger at the end of the month in the US. While another last-minute deal to dull the impact similar to deal done on tax hikes at the turn of the year seems likely, some amount of additional austerity is almost certainly in the cards.

Overall US economic news-flow has increasingly disappointed relative to expectations over recent weeks, raising concerns about the recovery’s ability to withstand any material fiscal tightening. Such worries have scope to begin feeding risk aversion, which may spill over into the FX space by directing haven flows into the Japanese Yen to force a correction of the dramatic selloff played out since mid-2012.

Forex markets consolidated in overnight trade, with most of the major currencies little-changed against the US Dollar. The Australian Dollar narrowly outperformed, up as much as 0.2 percent on average, after China’s Non-Manufacturing PMI gauge continue to edge upward, hitting the highest level in five months. China is Australia’s largest trading partner and accelerating economic activity there bodes well for the latter country’s export demand outlook.

Asia Session:

GMT

CCY

EVENT

ACT

EXP

PREV

1:00

CNY

Non-Manufacturing PMI (JAN)

56.2

-

56.1

23:30

AUD

TD Securities Inflation (MoM) (JAN)

0.3%

-

0.4%

23:30

AUD

TD Securities Inflation (YoY) (JAN)

2.5%

-

2.4%

23:50

JPY

Monetary Base (YoY) (JAN)

10.9%

-

11.8%

0:01

GBP

Lloyds Business Barometer (JAN)

15

-

20

0:30

AUD

Building Approvals (MoM) (DEC)

-4.4%

1.0%

3.4% (R+)

0:30

AUD

Building Approvals (YoY) (DEC)

9.3%

14.9%

14.1% (R+)

0:30

NZD

ANZ Commodity Price (JAN)

0.3%

-

1.0%

0:30

AUD

ANZ Job Advertisements (MoM) (JAN)

-0.9%

-

-2.8% (R-)

Euro Session:

GMT

CCY

EVENT

EXP

PREV

IMPACT

7:00

CHF

UBS Real Estate Bubble Index (4Q)

-

1.02

Low

9:30

EUR

Euro-Zone Sentix Investor Confidence (FEB)

-1.7

-7

Low

9:30

GBP

PMI Construction (JAN)

49.2

48.7

Medium

10:00

EUR

Euro-Zone Producer Price Index (MoM) (DEC)

-0.2%

-0.2%

Medium

10:00

EUR

Euro-Zone Producer Price Index (YoY) (DEC)

2.1%

2.1%

Medium

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3493

1.3797

GBPUSD

1.5674

1.5927

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya, e-mail ispivak@dailyfx.com. Follow Ilya on Twitter at @IlyaSpivak

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04 February 2013 05:41 GMT