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FOREX: Yen Falls on Rating Cut Threat, Dollar Sold Amid Easing EU Debt Fears

FOREX: Yen Falls on Rating Cut Threat, Dollar Sold Amid Easing EU Debt Fears

2011-05-31 05:33:00
Ilya Spivak, Sr. Currency Strategist
Share:

Overnight Headlines

  • Yen Tumbles as Moody’s Puts Japan on Review for Credit Rating Cut
  • Dollar Sold as Easing Euro Zone Debt Crisis Fears Boost Risk Appetite
  • NZ Dollar Outperforms After Business Confidence Hits 11-Month High

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.4285

1.4494

GBPUSD

1.6478

1.6607

The Euro rose in overnight trade, adding as much as 0.9 percent against the US Dollar as EU debt fears dissipated (see below) to boost the single currency and risk appetite at large. The British Pound likewise advanced amid broad-based USD weakness, adding as much as 0.4 percent.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

23:01

GBP

Lloyds Business Barometer (MAY)

14

-

30

23:15

JPY

Markit/JMMA Manufacturing PMI (MAY)

51.3

-

45.7

23:20

CNY

Leading Index (APR)

102.11

-

101.76 (R+)

23:30

JPY

Job-To-Applicant Ratio (APR)

0.61

0.62

0.63

23:30

JPY

Household Spending (YoY) (APR)

-3.0%

-2.7%

-8.5%

23:30

JPY

Jobless Rate (APR)

4.7%

4.7%

4.6%

23:50

JPY

Industrial Production (MoM) (APR P)

1.0%

2.2%

-15.5%

23:50

JPY

Industrial Production (YoY) (APR P)

-14.0%

-12.4%

-13.1%

0:30

AUD

RP Data-Rismark House Px MoM SA (APR)

-0.3%

-

-0.6% (R-)

0:30

AUD

RP Data-Rismark House Px MoM Raw (APR)

-0.1%

-

-0.5% (R-)

1:00

NZD

NBNZ Activity Outlook (MAY)

39.7

-

29.5

1:00

NZD

NBNZ Business Confidence (MAY)

38.3

-

14.2

1:30

AUD

Building Approvals (MoM) (APR)

-1.3%

-1.8%

8.6% (R-)

1:30

AUD

Building Approvals (YoY) (APR)

-11.5%

-12.7%

-19.3% (R-)

1:30

AUD

Current Account Balance (A$) (1Q)

-10447M

-10000M

-8091M (R-)

1:30

AUD

Australia Net Exports of GDP (1Q)

-2.4

-1.1

0.0

1:30

JPY

Labor Cash Earnings (YoY) (APR)

-1.4%

-0.2%

-0.1% (R-)

1:30

AUD

Private Sector Credit (MoM) (APR)

0.0%

0.5%

0.6%

1:30

AUD

Private Sector Credit (YoY) (APR)

3.3%

3.8%

3.5%(R-)

3:00

NZD

Money Supply M3 (YoY) (APR)

5.7%

-

5.6%

4:00

JPY

Vehicle Production (YoY) (APR)

-60.1%

-

-57.3%

5:00

JPY

Construction Orders (YoY) (APR)

31.4%

-

-11.0%

5:00

JPY

Annualized Housing Starts (APR)

0.798M

0.780M

0.807M

5:00

JPY

Housing Starts (YoY) (APR)

0.3%

-3.0%

-2.4%

The Japanese Yen underperformed in overnight trade, down as much as 0.8 percent against its top counterparts after Moody’s put Japan on review for a credit rating downgrade within three months. The ratings giant said the decision was prompted by “heightened concern that faltering economicgrowth prospects and a weak policy response would make more challengingthe government's ability to fashion and achieve a credible deficitreduction target.” Specifically, Moody’s expressed concern that the recovery from the 2008 global crisis has been stunted by the Tohoku earthquake, that the government’s fiscal policy will continue to fall short of what is needed to bring the deficit meaningfully lower in a timely manner, and long-term demographic pressures (whereby the shrinking population is reducing the tax base).

The US Dollar likewise came under selling pressure as Euro Zone debt crisis fears continued to dissipate, boosting overall risk appetite and weighing on demand for the safe-haven greenback. Optimism emerged after Eurogroup head and Luxembourg Prime Minister Jean-Claude Juncker ruled out a “total restructuring” for Greece – which would have amounted to a default – while a Wall Street Journal article cited an unnamed source saying German officials were ready to relax demands for early bond rescheduling to pave the way for a second round of aid to the Mediterranean country. Greek and Portuguese CDS rates fell 11.1 and 22.3 basis points respectively, reflecting a lower priced-in likelihood of default in the two closely-watched periphery countries.

The New Zealand Dollar outperformed among the sentiment-linked currencies, with overall positive cues from the easing sovereign risk fears compounded by a surge in Business Confidence. An NBNZ gauge of companies’ outlook jumped to 38.3 in May, the highest in 11 months. By contrast, the Australian Dollar was held back from fully capitalizing on the surge in risk appetite as the Current Account deficit widened more than expected to show net exports shaved 2.4 percentage points off overall growth in the first quarter while Private Sector Credit growth unexpectedly stalled in April and Building Permits fell from the previous year, marking the sixth consecutive decline.

Related: Japanese Industrial Production Falls Short of Expectations; Government says Economic Outlook Remains Positive

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

5:45

CHF

Gross Domestic Product (QoQ) (1Q)

0.7%

0.9%

High

5:45

CHF

Gross Domestic Product (YoY) (1Q)

3.0%

3.1%

High

6:00

EUR

German Retail Sales (MoM) (APR)

1.8%

-2.7%

Medium

6:00

EUR

German Retail Sales (YoY) (APR)

1.5%

-3.5%

Medium

6:00

CHF

UBS Consumption Indicator (APR)

-

1.66

Low

6:45

EUR

French Consumer Spending (MoM) (APR)

-0.3%

-0.7%

Low

6:45

EUR

French Consumer Spending (YoY) (APR)

3.7%

2.6%

Low

6:45

EUR

French Producer Prices (MoM) (APR)

0.8%

0.9%

Low

6:45

EUR

French Producer Prices (YoY) (APR)

6.4%

6.6%

Low

7:55

EUR

German Unemployment Rate s.a. (MAY)

7.0%

7.1%

Medium

7:55

EUR

German Unemployment Change (MAY)

-30K

-37K

High

8:00

EUR

Italian Unemployment Rate s.a. (APR P)

8.3%

8.3%

Low

9:00

EUR

Italian CPI (NIC incl. tobacco) (YoY) (MAY P)

2.7%

2.6%

Low

9:00

EUR

Italian CPI - EU Harmonized (MoM) (MAY P)

0.2%

1.0%

Low

9:00

EUR

Italian CPI - EU Harmonized (YoY) (MAY P)

3.0%

2.9%

Low

9:00

EUR

Italian CPI (NIC incl. tobacco) (MoM) (MAY P)

0.2%

0.5%

Low

9:00

EUR

Euro-Zone CPI Estimate (YoY) (MAY)

2.8%

2.8%

Medium

9:00

EUR

Euro-Zone Unemployment Rate (APR)

9.9%

9.9%

Low

10:00

EUR

Italian Producer Price Index (MoM) (APR)

0.0%

0.7%

Low

10:00

EUR

Italian Producer Price Index (YoY) (APR)

5.5%

6.1%

Low

German Unemployment figures headline the economic calendar, with expectations calling for the ranks of the jobless to shrink by 30,000 in May, bringing the overall Unemployment Rate to the lowest in at least two decades at 7 percent. Separately, the flash estimate of May’s Euro Zone Consumer Price Index reading is forecast to keep the pace of inflation at a 30-month high 2.8 percent German Retail Sales are predicted to rise 1.8 percent, marking the largest upswing in close to a year. Taken along with ebbing sovereign risk fears (see above), such broadly supportive data results are likely to stoke European Central Bank interest rate hike expectations, boosting the Euro in the process.

On the sentiment front, stock index futures are trading aggressively higher, with contracts tracking the S&P 500 and those following the FTSE 100 up 0.7 percent in late Asian trade to hint the safety-linked US Dollar will remain on the defensive against most of its top counterparts.

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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