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Euro Struggles to Continue Rally; Yen Top Performer

Euro Struggles to Continue Rally; Yen Top Performer

2012-01-27 14:56:00
Christopher Vecchio, CFA, Senior Strategist

Fundamental Headlines

Lagarde Keeps Pressure on Greek Creditors – Bloomberg

U.S. Economy Grows 2.8%, Less than Forecast – Bloomberg

EU, IMF Press Greece on Reforms Before Aid Flows – Reuters

Greece Edges towards Debt Deal – WSJ

Investors Abandoning Copper, Cotton, Crude – WSJ

European Session Summary

It appears a new trend has emerged, one that is indicative of a top forming across higher yielding currencies and risk-correlated assets. As my colleague Jamie Saettele has noted, after the U.S. session has closed, there has been a slight sell-off, culminating in a bottom being put towards the end of Asian trading, with new highs set in afternoon trading in New York. Today, however, the script has been flipped: markets topped in European trading and moved lower ahead of trading in New York. That’s to say that during the more liquid trading hours; market participants have bid higher lower yielding and safer assets.

A quick glance at the credit markets suggests that the European Central Bank has been intervening steadily in the secondary periphery market. Of note, both Italian and Spanish 10-year bond yields are substantially lower on the day. On the other hand, market participants continue to hammer Greek and Portuguese markets, with the Portuguese 10-year bond yield at 14.120 percent, at the time this report was written. The Portuguese 10-year bond yield is now 191-basis points wider against its German equivalent on the year thus far.

EUR/USD 5-min Chart: January 27, 2012

Euro_Struggles_to_Continue_Rally_Yen_Top_Performer_body_Picture_10.png, Euro Struggles to Continue Rally; Yen Top Performer

Charts created using Marketscope– Prepared by Christopher Vecchio

Overall, the U.S. Dollar was the worst performing major currency on the day, though it was unchanged against the Australian Dollar, at the time this report was written. Quizzically, the Japanese Yen was the top performer, and I believe this is the first move lower in what will be an advance towards a new record low in the USD/JPY. Accordingly, I expect the Bank of Japan and/or Ministry of Finance to become extremely vocal in its anti-Yen position in the coming weeks, culminating in another intervention late in the first quarter or early in the second quarter.

24-Hour Price Action

Euro_Struggles_to_Continue_Rally_Yen_Top_Performer_body_Picture_7.png, Euro Struggles to Continue Rally; Yen Top PerformerEuro_Struggles_to_Continue_Rally_Yen_Top_Performer_body_Picture_1.png, Euro Struggles to Continue Rally; Yen Top Performer

Key Levels: 14:20 GMT

Euro_Struggles_to_Continue_Rally_Yen_Top_Performer_body_Picture_4.png, Euro Struggles to Continue Rally; Yen Top Performer

Thus far, on Friday, the Dow Jones FXCM Dollar Index is slightly lower, trading at 9782.91, at the time this report was written, after opening at 9811.70. The index has traded mostly lower, with the high at 9826.92 and the low at 9773.57.

--- Written by Christopher Vecchio, Currency Analyst

To contact Christopher Vecchio, e-mail

Follow him on Twitter at @CVecchioFX

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.