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FOREX: Yen Outperforms as Libya Crisis Pushes Oil to 29-Month High

FOREX: Yen Outperforms as Libya Crisis Pushes Oil to 29-Month High

2011-03-07 07:55:00
Ilya Spivak, Sr. Currency Strategist
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Overnight Headlines

  • Japanese Yen Outperforms, Stocks Slump as Libyan Crisis Bids Up Oil Prices
  • Moody’s Downgrades Greece’s Credit Rating, Citing “Enormous” Task Ahead

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3940

1.4006

GBPUSD

1.6216

1.6286

The Euro edged lower in overnight trade, down as much as 0.2 percent against the US Dollar. The British Pound likewise inched downward, shedding as much as 0.3 percent against the greenback. We remain short NZDUSD.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

21:45

NZD

Building Permits (MoM) (JAN)

9.6%

-

-18.2%

23:30

AUD

AiG Performance of Construction Index (FEB)

44.6

-

40.2

23:50

JPY

Official Reserve Assets (FEB)

$1091.5B

-

$1093.0B

0:30

AUD

ANZ Job Advertisements (MoM) (FEB)

1.2%

-

3.0% (R+)

5:00

JPY

Coincident Index (JAN P)

106.2

105.9

103.5

5:00

JPY

Leading Index (JAN P)

101.9

102.3

101.4

5:30

AUD

Foreign Reserves (A$) (FEB)

39.9B

-

40.8B

The Japanese Yen outperformed in overnight trade as stocks plunged across Asian exchanges after escalating violence in Libya pushed oil prices to a new 29-month high. The MSCI Asia Pacific regional benchmark equity index fell 1.1 percent while the WTI crude oil contract pushed above $106/barrel for the first time since September 2008. The Yen was able to capitalize on risk aversion as traders unwound carry trade positions funded cheaply in the perennially low-yielding currency. The New Zealand Dollar bore the brunt of the selloff in risk-geared currencies, down 0.3% on average against its top counterparts.

The re-emergence of sovereign stress on the Euro Zone periphery didn’t help matters following news that Moody’s downgraded Greece’s credit rating late in the session. Moody’s cited the “enormous” task of reforming the nation’s finances and expressing uncertainty about funding support beyond 2013 for the beleaguered nation. The news comes a day before the European Commission is scheduled to issue detailed proposals on how the EU ought to support southern Euro Zone member states which will service as a baseline for Friday’s special European Council meeting.

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

9:30

EUR

Euro-Zone Sentix Investor Confidence (MAR)

17.2

16.7

Low

An uneventful economic calendar leaves the door open for risk sentiment to remain the core driver of price action, with European shares poised to drag risk-linked currencies lower to start the trading week as escalating violence in Libya continues to push up oil prices, threatening the global recovery.

Putting the crisis in perspective, the north African country ranks only 12th on the world’s top crude exporters’ list, accounting for a mere 1.5 million barrels per day of output. Therefore, the situation there is of market-moving significance in terms of shaping investors’ perceptions of what a crisis in the region could look like – bloody and disruptive rather than mostly non-violent and orderly – as had been the case in Egypt and Tunisia. To that affect, oil prices are likely to continue to advance as long as reports bloodshed fill the headlines, keeping risk appetite on the defensive and boosting the likes of the US Dollar and Japanese Yen.

For real time news and analysis, please visit http://www.dailyfx.com/real_time_news

To receive future articles by email, please contact Ilya at ispivak@dailyfx.com

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