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FOREX:Yen Leads Safe-Haven Currencies Higher on Nuclear Disaster Fears

FOREX:Yen Leads Safe-Haven Currencies Higher on Nuclear Disaster Fears

2011-03-15 07:30:00
Ilya Spivak, Sr. Currency Strategist
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Overnight Headlines

  • Yen Leads Safe-Haven Currencies Higher as Nikkei Plunges 14 Percent
  • Japanese PM Kan Says Radiation Leak Risk Has Increased at Power Plant
  • RBA Sees Larger ‘Downside Risks’ from Queensland Floods than Expected

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3887

1.3986

GBPUSD

1.6031

1.6203

The Euro and the British Pound dropped as much as 0.72 and 0.75 percent in overnight trade as broad-based risk aversion encouraged safe-haven demand for the US Dollar (see below). We remain short EURUSD and NZDUSD.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

0:30

AUD

Reserve Bank of Australia Meeting Minutes (MAR)

-

-

-

0:30

AUD

New Motor Vehicle Sales (YoY) (FEB)

0.2%

-

-2.4% (R-)

0:30

AUD

New Motor Vehicle Sales (MoM) (FEB)

-1.5%

-

-2.8%

6:00

JPY

Machine Tool Orders (YoY) (FEB F)

73.9%

-

73.7%

The Japanese Yen soared against all of its top counterparts in overnight trade on the back of repatriation flows as the Nikkei plunged sharply lower, sending capital fleeing out of risky assets and back into cash. The drop followed comments from JapanesePrime Minister Naoto Kan, who said the risk of radiation leaks has increased after a fourth explosion at the Fukishima Daiichi nuclear power plant. The Nikkei dropped as much as 14.4 percent, dragging the MSCI Asia Pacific regional benchmark equity index down 6.8 percent, the most since October 2008. The safety-linked US Dollar and Swiss Franc likewise capitalized on the risk-averse environment, adding as much as 0.6 each against the majors.

Minutes from the March 1 policy meeting of the Reserve Bank of Australia showed the bank sees current “mildly restrictive” interest rates as appropriate, adding that inflation is likely to remain consistent with the target 2-3 percent range through next year. Glenn Stevens and company were less sanguine on the fallout from January’s floods in Queensland, citing “downside risks” from damaged mines to economic growth and adding that the impact on output in the second quarter is likely to be larger than previously expected. Separately, New Motor Vehicle Sales fell for the fourth consecutive month, down 1.5 percent in February.

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

6:30

EUR

French Consumer Price Index (MoM) (FEB)

0.5%

-0.2%

Low

6:30

EUR

French Consumer Price Index (YoY) (FEB)

1.7%

1.8%

Low

6:30

EUR

French CPI - EU Harmonised (MoM) (FEB)

0.6%

-0.3%

Low

6:30

EUR

French CPI - EU Harmonised (YoY) (FEB)

1.9%

1.9%

Low

6:30

EUR

French CPI Ex Tobacco Index (FEB)

120.99

120.32

Low

9:30

GBP

DCLG UK House Prices (YoY) (JAN)

2.3%

3.8%

Medium

9:30

GBP

Nationwide Consumer Confidence

-

47

Low

10:00

EUR

Euro-Zone Employment (QoQ) (4Q)

-

0.0%

Low

10:00

EUR

Euro-Zone Employment (YoY) (4Q)

-

-0.2%

Low

10:00

EUR

German ZEW Survey (Econ. Sentiment) (MAR)

15.9

15.7

High

10:00

EUR

German ZEW Survey (Curr. Situation) (MAR)

84.9

85.2

Medium

10:00

EUR

Euro-Zone ZEW Survey (Econ. Sentiment) (MAR)

-

29.5

Medium

Broad-based trends are likely to remain as the key driver of currency markets in European hours. Stock index futures are pointing sharply lower, with contracts tracking the S&P 500 and the FTSE 100 a bit off their overnight lows but still firmly in negative territory ahead of the opening bell, down close to 2 percent apiece. This points to continued gains for the safe-haven currency bloc, promising to extend the rallies in the Japanese Yen, Swiss Franc and US Dollar. With that in mind, the situation remains highly fluid, with new developments pouring in constantly and making the drafting of a firm outlook decidedly difficult.

On the data front, February’s German ZEW Survey of investor confidence is expected to show that forward-looking expectations improved for the fifth consecutive month. However the narrow magnitude of the expected improvement – the smallest since the gauge found a bottom in October – seems unlikely to produce much support for the Euro amid broad-based risk aversion. Furthermore, Spain is due to tap the markets, selling a tranche of 371- and 525-day bills. Traders will be watching the outcome with great interest after the outlines of a “grand bargain” on the periphery debt crisis revealed on Friday fell short of offering meaningful protection to a country of Spain’s size (the Euro Zone’s fourth-largest).

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