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Forex Analysis: Yen May Extend Rally as Risk Appetite Comes Undone

Forex Analysis: Yen May Extend Rally as Risk Appetite Comes Undone

Ilya Spivak, Head Strategist, APAC

The Japanese Yen may extend gains as haven demand returns, compounding cautionary official commentary warning against excessive weakness.

Talking Points

  • Japanese Yen Soars as EconMin Amari Warns Against Excessive Depreciation
  • British Pound Volatility Unlikely as UK CPI Data Reinforces BOE Status Quo
  • Risk Appetite May Suffer on Fear US Austerity to Undermine Global Growth

The Japanese Yen soared in overnight trade, adding as much as 1.1 percent on average against its leading counterparts, after Kyodo Newscited Economy Minister Akira Amari saying excessive weakness can be a drag on the economy. Amari argued the Yen is at a “pretty good level” now and warned that depreciation beyond ¥100 to the US Dollar will unduly raise the price of imports and hurt consumers. The remarks suggested the newly-minted LDP administration may not be as keen weaken then Yen as has been reflected in recent trade, driving profit-taking on short positions.

December’s UK CPI report headlines the economic calendar in European hours. Expectations suggest the year-on-year inflation rate will remain unchanged at 2.7 percent for the third consecutive month. As such, the outcome is unlikely to yield much in terms of Bank of England policy implications, suggesting its impact on the British Pound is likely to be limited at best. Later in the day, the spotlight turns to the US calendar where, where December’s Advance Retail Sales numbers are set to come across the wires. Economists expect receipts to rise 0.2 percent, marking a mild deterioration from the prior month but printing close enough to the medium-term trend average to command limited attention from investors.

On the sentiment front, S&P 500 index futures are pointing cautiously lower to suggest a risk-off mood may be taking shape. While such an outcome may offer further support to the Japanese Yen as well as the likewise safety-linked US Dollar, the magnitude of overnight weakness is not sufficiently compelling to draw firm conclusions. As we discussed yesterday however, the temporary lull in big-ticket event risk may give traders an opportunity to ponder on-coming headwinds from US austerity as the “debt ceiling” and “sequester” battles draw closer. If this proves so, a potent spark for risk aversion will have been found.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

20:30

NZD

REINZ Housing Price Index (DEC)

3522.7

-

3544.4

20:30

NZD

REINZ Housing Price Index (MoM) (DEC)

-0.6%

-

1.4%

20:30

NZD

REINZ Housing Price Index (YoY) (DEC)

8.2%

-

24.1%

21:00

USD

Fed's Bernanke Speaks in Michigan

-

-

-

21:45

NZD

NZIER Business Opinion Survey (4Q)

20

-

8

21:45

NZD

Food Prices (MoM) (DEC)

-0.2%

-

-0.8%

23:50

JPY

Japan Money Stock M2+CD (YoY) (DEC)

2.6%

2.1%

2.1%

23:50

JPY

Japan Money Stock M3 (YoY) (DEC)

2.2%

1.9%

1.9%

0:01

GBP

RICS House Price Balance (DEC)

0%

-8%

-9%

4:30

JPY

Bankruptcies (YoY) (DEC)

-13.8%

-

-12.0%

6:00

JPY

Machine Tool Orders (YoY)

-27.5%

-

-21.3%

Euro Session: What to Expect

GMT

CCY

EVENT

EXP/ACT

PREV

IMPACT

7:00

EUR

German CPI (MoM) (DEC F)

0.9% (A)

0.9%

Medium

7:00

EUR

German CPI (YoY) (DEC F)

2.1% (A)

2.1%

Medium

7:00

EUR

German CPI - EU Harmonised (MoM) (DEC F)

0.9% (A)

1.0%

Medium

7:00

EUR

German CPI - EU Harmonised (YoY) (DEC F)

2.0% (A)

2.1%

Medium

8:00

EUR

German Budget / GDP Ratio (2012)

0.1% (A)

-0.8%

Low

8:00

EUR

German GDP n.s.a. (YoY) (2012)

0.7% (A)

3.0%

Low

9:30

GBP

PPI Input n.s.a. (MoM) (DEC)

0.0%

0.1%

Low

9:30

GBP

PPI Input n.s.a. (YoY) (DEC)

0.4%

-0.3%

Low

9:30

GBP

PPI Output n.s.a. (MoM) (DEC)

0.0%

-0.2%

Medium

9:30

GBP

PPI Output n.s.a. (YoY) (DEC)

2.4%

2.2%

Medium

9:30

GBP

PPI Output Core n.s.a. (MoM) (DEC)

0.0%

0.0%

Low

9:30

GBP

PPI Output Core n.s.a. (YoY) (DEC)

1.5%

1.4%

Low

9:30

GBP

DCLG UK House Prices (YoY) (NOV)

1.6%

1.5%

Low

9:30

GBP

CPI (MoM) (DEC)

0.5%

0.2%

High

9:30

GBP

CPI (YoY) (DEC)

2.7%

2.7%

High

9:30

GBP

Core CPI (YoY) (DEC)

2.6%

2.6%

High

9:30

GBP

Retail Price Index (MoM) (DEC)

0.4%

0.0%

Low

9:30

GBP

Retail Price Index (YoY) (DEC)

3.0%

3.0%

Low

9:30

GBP

RPI ex Mort Int.Payments (YoY) (DEC)

3.0%

2.9%

Low

10:00

EUR

Euro-Zone Trade Balance (€) (NOV)

10.0B

10.2B

Low

10:00

EUR

Euro-Zone Trade Balance s.a. (€) (NOV)

8.0B

7.9B

Low

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3305

1.3412

GBPUSD

1.6022

1.6145

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya, e-mail ispivak@dailyfx.com. Follow Ilya on Twitter at @IlyaSpivak

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