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FOREX: Markets Brace for Intervention as Japan Announces G7 Meeting

FOREX: Markets Brace for Intervention as Japan Announces G7 Meeting

2011-03-17 08:00:00
Ilya Spivak, Sr. Currency Strategist
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Overnight Headlines

  • Japanese Yen Spikes to Record High Only to Promptly Erase Advance
  • Euro, British Pound Edge Higher to Retrace Previous Day’s Losses
  • Markets Brace for Intervention as FinMin Noda Announces G7 Meeting

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3857

1.3991

GBPUSD

1.5949

1.6189

The Euro and the British Pound remained well-supported in overnight trade, edging narrowly higher against the US Dollar to retrace the previous day’s losses. We remain short EURUSD and NZDUSD.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

21:00

NZD

Westpac NZ Consumer Confidence (1Q)

97.9

-

108.3

23:50

JPY

Tertiary Industry Index (MoM) (JAN)

2.1%

1.4%

-0.9% (R-)

0:00

AUD

Westpac 1st-Qtr ACCI Survey

-

-

-

Currency markets were in for a wild session overnight as the Japanese Yen surged to a record high just after daily rollover at 21:00 GMT. The move came in the least liquid hour of the trading day and seemingly fed on itself as stops triggered en-masse below the previous high at 79.75 to the US Dollar set in Aril 1995. Price action following the spike reinforced its speculative nature, with USDJPY retracing to fully erase the drop within 4 hours of its onset.

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

6:45

CHF

SECO March 2011 Economic Forecasts

-

-

Medium

8:15

CHF

Industrial Production (QoQ) (4Q)

4.6%

1.8%

Medium

8:15

CHF

Industrial Production (YoY) (4Q)

6.3%

5.8%

Medium

8:30

CHF

Swiss National Bank Rate Decision

0.25%

0.25%

High

10:00

EUR

Euro-Zone Construction Output (MoM) (JAN)

-

-1.8%

Low

10:00

EUR

Euro-Zone Construction Output (YoY) (JAN)

-

-12.0%

Low

10:00

EUR

Italian Current Account (euros) (JAN)

-

-5382M

Low

Stock index futures are pointing higher ahead of the opening bell, hinting risky assets (and correlated currencies) are poised to recover in the coming session. The gains likely follow news of a special meeting of G7 officials announced by Japan’s Finance Minister Yoshihiko Noda overnight, who said the conversation will be focused on the Japanese economy and overall financial markets.

On balance, any advance is likely to reflect a correction of recent selling rather than genuine optimism given the uncertainty about what policymakers will produce after the sit-down. Regardless of the outcome however, it is clearly not going to prevent a meltdown of one of the damaged nuclear reactors at Fukushima Daiichi. Indeed, with the nuclear issue at the forefront, there seems little that the G7 can do short of a coordinated intervention into financial markets – a course of action fraught with dangers and uncertainties of its own – until the full extent of the damage can be ascertained.

On the data front, the Swiss National Bank is set to keep benchmark interest rates unchanged at 0.25 percent. While the annual inflation rate has edged up a bit over recent months, it remains well below the bank’s 2 percent target level, registering at a paltry 0.5 percent in February. Furthermore, with the Swiss Franc trading just a hair off record highs, the exchange rate is already doing all the tightening required at the moment. Separately, Spain will auction off a tranche of 10- and 30-year bonds, which traders will watch closely as a barometer of confidence in the Euro Zone’s ability to contain periphery debt problems.

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