Forex Analysis: Japanese Yen Rally May Fade if US GDP Buoys Sentiment

2012-10-26 06:43:00 Ilya Spivak, Head Strategist, APAC

The Japanese Yen rose on haven demand as disappointing earnings from Apple Inc sank Asian stocks but the rally may fade if a pickup in US GDP buoys sentiment.

Talking Points

Japanese Yen Recovered as Dismal Apple Inc Earnings Sank Asian Exchanges
S&P 500 Futures Point to Risk Aversion but US GDP May Counter Negativity
Euro May Outperform on Pickup in Risk Appetite, Dollar Losses Likely Limited

The Japanese Yen recovered as Asian stocks sank overnight, boosting forex traders’ demand for the regional haven currency. The MSCI Asia Pacific regional benchmark equity index fell 0.9 percent. Newswires chalked up the selloff to disappointing set of earnings from Apple Inc. The world’s largest company by market value reported profits rose $8.67/share in the fiscal fourth quarter, trailing analysts’ estimates calling for an $8.75/share result, and slashed its guidance for the three months ahead. The Australian Dollar underperformed, down as much as 0.5 percent against its top counterparts.

S&P 500 index futures tumbled to their lowest level in nearly two months ahead of the opening bell in Europe, hinting the risk-averse mood is likely to carry forward. The economic calendar is quiet until third-quarter US GDP figures cross the wires. Expectations call an increase of 1.8 percent, marking acceleration from the 1.3 percent recorded in the three months through June.The pickup may stoke hopes that firming growth in the world’s top economy is becoming better able to offset sluggish performance in Asia and a recession in Europe. This may offer support to sentiment trends, countervailing overnight negativity.

Such an outcome is likely to see the selling pressure re-applied to the Japanese Yen as haven-seeking capital flows dry up. The likewise safety-linked US Dollar may also come under near-term pressure but losses are likely to be relatively contained. A strong US GDP print is likely to dent bets on an expansion of Federal Reserve stimulus efforts, offering the greenback a degree of support. The Euro is showing the most significant positive correlation with the S&P 500 among the major currencies (on 20-day percent change studies), hinting it is likely to outperform in a risk-on scenario.

Asia Session: What Happened

GMT	CCY	EVENT	ACT	EXP	PREV
21:45	NZD	Trade Balance (NZ$) (SEP)	-791M	-850M	-809M (R-)
21:45	NZD	Trade Balance YTD (NZ$) (SEP)	-888M	-914M	-885M (R-)
21:45	NZD	Exports (NZ$) (SEP)	3.31B	3.30B	3.31B (R-)
21:45	NZD	Imports (NZ$) (SEP)	4.10B	4.20B	4.12B (R+)
23:30	JPY	National CPI (YoY) (SEP)	-0.3%	-0.4%	-0.4%
23:30	JPY	National CPI Ex-Fresh Food (YoY) (SEP)	-0.1%	-0.2%	-0.3%
23:30	JPY	National CPI Ex Food, Energy (YoY) (SEP)	-0.6%	-0.7%	-0.5%
23:30	JPY	Tokyo CPI (YoY) (OCT)	-0.8%	-0.8%	-0.7%
23:30	JPY	Tokyo CPI Ex-Fresh Food (YoY) (OCT)	-0.4%	-0.5%	-0.4%
23:30	JPY	Tokyo CPI Ex Food, Energy (YoY) (OCT)	-1.0%	-1.1%	-1.1%
0:00	NZD	NBNZ Activity Outlook (OCT)	25.5	-	29.3
0:00	NZD	NBNZ Business Confidence (OCT)	17.2	-	17
1:35	CNY	MNI Business Sentiment Indicator (OCT)	51.86	-	51.35

Euro Session: What to Expect

GMT	CCY	EVENT	EXP/ACT	PREV	IMPACT
6:00	EUR	German Import Price Index (MoM) (SEP)	-0.7% (A)	1.3%	Low
6:00	EUR	German Import Price Index (YoY) (SEP)	1.8% (A)	3.2%	Low
6:00	EUR	German GfK Consumer Confidence Survey (NOV)	6.3 (A)	5.9	Medium
6:45	EUR	French Consumer Confidence Indicator (OCT)	84	85	Low
6:45	EUR	French Business Survey Overall Demand (OCT)	-	-24	Low
7:00	CHF	KOF Swiss Leading Indicator (OCT)	-	1.67	Medium
8:00	EUR	Italian Business Confidence (OCT)	88.7	88.3	Low
8:00	EUR	Italian Economic Sentiment (OCT)	-	75.5	Low
9:00	EUR	Italy to Sell 2014 0-Cpn Bonds, 2021-26 I/L Bonds	-	-	Low