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Japanese Yen Gains as Markets Position for Volatility Ahead

By , Currency Strategist
29 July 2013 07:26 GMT

The Japanese Yen outperformed in overnight trade as the Nikkei plunged in what appeared to be pre-positioning ahead of on-coming Fed-linked volatility.

Talking Points

  • Japanese Yen Outperforms as Markets Position for Volatile Week Ahead
  • British Pound May Rise on Mortgage Approvals, Follow-Through Limited
  • US Economic News-Flow May Set the Stage for Further US Dollar Selling

The Japanese Yen outperformed in otherwise quiet overnight trade, rising as much as 0.5 percent on average against its leading counterparts. The move closely tracked a drop in the benchmark Nikkei 225 stock index as eroding risk appetite encouraged an unwinding of carry trades funded cheaply in the perennially low-yielding currency. As we discussed earlier, the move seems to reflect protective profit-taking ahead of the volatility that is likely to surround the hefty dose of high-profile event risk due to cross the wires this week.

The economic calendar is relatively quiet in European hours, with June’s UK Mortgage Approvals data point amounting to the only somewhat noteworthy item on the docket. A slight pick-up to 59.7k is expected, putting approvals at the highest since March 2008. The release may be nominally supportive for the British Pound in that signs of strength in mortgage lending may discourage a dovish shift in Bank of England policy. Any move is likely to be short-lived however as traders focus on the policy announcement due later in the week for clues about the bank’s new “forward guidance” initiative.

The spotlight then promptly shifts to the US economic calendar, where June’s Pending Home Sales figure and the Dallas Fed Manufacturing Activity gauge will set the stage for a week focused on speculation surrounding the Fed’s intentions to “taper” the size of asset purchases through its quantitative easing (QE) effort. On the whole, US economic outcomes have returned somewhat lackluster resultsrelative to expectations over recent weeks. This keeps the door open for disappointing news-flow that undercuts the case for a near-term reduction in stimulus and applies further downward pressure on the US Dollar.

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Asia Session:

GMT

CCY

EVENT

ACT

EXP

PREV

23:01

GBP

Hometrack Housing Survey (MoM) (JUL)

0.3%

-

0.4%

23:01

GBP

Hometrack Housing Survey (YoY) (JUL)

1.3%

-

0.8%

23:50

JPY

Retail Trade s.a. (MoM) (JUN)

-0.2%

0.8%

1.5%

23:50

JPY

Retail Trade (YoY) (JUN)

1.6%

2.1%

0.80%

23:50

JPY

Large Retailers' Sales (YoY) (JUN)

3.5%

3.6%

-0.4%

3:30

JPY

BOJ’s Kuroda Speaks in Tokyo

-

-

-

5:55

CNY

Leading Index (JUN)

99.55

-

99.72

Euro Session:

GMT

CCY

EVENT

EXP/ACT

PREV

IMPACT

8:00

EUR

Italian Business Confidence (JUL)

91.0

90.2

Low

8:30

GBP

Net Consumer Credit (JUN)

0.7B

0.7B

Low

8:30

GBP

Net Lending Sec. on Dwellings (JUN)

0.7B

0.3B

Low

8:30

GBP

Mortgage Approvals (JUN)

59.7K

58.2K

Medium

8:30

GBP

M4 Money Supply (MoM) (JUN)

0.2%

-0.1%

Low

8:30

GBP

M4 Money Supply (YoY) (JUN)

-

-0.1%

Low

8:30

GBP

M4 Ex IOFCs 3M Annualised (JUN)

4.4%

4.3%

Low

10:00

GBP

CBI Reported Sales (JUL)

10

1

Low

Critical Levels:

CCY

SUPPORT

RESISTANCE

EURUSD

1.3232

1.3300

GBPUSD

1.5324

1.5414

--- 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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29 July 2013 07:26 GMT