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Yen Gains as Asian Stocks Follow Wall St Lower on Bernanke Comments

Yen Gains as Asian Stocks Follow Wall St Lower on Bernanke Comments

2010-07-22 05:01:00
Ilya Spivak, Sr. Currency Strategist
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Key Overnight Developments

Yen Gains as Asian Stocks Follow Wall St Lower on Bernanke Comments
• NZ Consumer Confidence, Australian Business Sentiment Disappoint

Critical Levels

euroopen072220101

The Euro and the British Pound consolidated NY-session losses in overnight trade, with the single currency tracking sideways in a narrow range above 1.2750 while the UK unit oscillated within 30 pips above 1.5160. We remain flat EURUSD and GBPUSD.

Asia Session Highlights

euroopen072220102

The Japanese Yen tracked broadly higher against the spectrum of major currencies amid renewed risk aversion as Asian stock exchanges followed Wall Street lower after Federal Reserve Chairman Ben Bernanke said the US economic outlook remains “unusually uncertain”, threatening the region’s export prospects and spurring an unwinding of carry trades funded in the low-yielding currency. The MSCI Asia Pacific regional benchmark index fell 0.3 percent.

A disappointing batch of economic figures reinforced the dour mood. New Zealand Consumer Confidence fell for the second consecutive month in July, slipping 5.3 percent to register at the lowest level since August 2009, according to a report from ANZ National Bank. Meanwhile, Australian Business Confidence dropped to the lowest in a year in the second quarter.

Euro Session: What to Expect

euroopen072220103

Preliminary German Purchasing Manager Index figures are set to show that growth in the manufacturing and service sectors deteriorated to the slowest in four months. A composite Euro Zone Purchasing Manager Index reading is expected to decline for the third consecutive month to print at the lowest since February. The outcomes may not prove particularly market-moving for the time being however, with PMI readings coming off multi-year highs and still well above their year-to-date averages, leaving room for the slowdown to amount to little more than a correction toward more sustainable long-term growth rates. Further, traders will be tempted to take a wait-and-see approach for now with major event risk lining up on Friday as the EU releases bank stress test results designed to show if the region’s major lenders can withstand a sovereign default.

Core UK Retail Sales are expected add 0.6 percent in June, marking the second consecutive increase. The outcome has likely had ample time to be priced in however having been foreshadowed by an analogous report from the British Retail Consortium last week. BRC Director General Stephen Robertson had chalked up the increase to “good weather and earlier summer clearances.” The outcome looking forward is less rosy however, with Stevens saying that while the government’s austerity plans are affecting confidence, “it won't be until the impact of the measures is actually felt that it really hits spending,” hinting receipts may turn significantly lower in the months ahead.

Turning to sentiment, US equity index futures are tracking 0.2 percent lower in late Asian trade, hinting the risk-averse dynamic noted overnight is likely to carry forward into European hours and driving continued buying of the Japanese Yen against its major counterparts. Second-quarter results from Caterpillar Inc and UPS headline the earnings calendar late into the session.


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