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Yen Extends Gains But Near-Term Continuation Questionable

Yen Extends Gains But Near-Term Continuation Questionable

Ilya Spivak, Head Strategist, APAC

The Japanese Yen continued to press higher amid risk aversion overnight but the sentiment-driven push may struggle to sustain momentum through the week-end.

Talking Points

  • Yen Extends Gains on Asian Stocks Drop, Kuroda Commentary
  • German IFO Survey May Prove to be a Non-Event for the Euro
  • Dollar May Rise if Durables Data Boosts Fed QE Reduction Bets

The Japanese Yen continued to rally for a second day as risk aversion struck again on Asian stock exchanges after yesterday’s blood-letting, driving continued unwinding of carry trades funded in the perennially low-yielding currency. The MSCI Asia Pacific regional benchmark index slid as much as 1.7 percent. The Australian and New Zealand Dollars bore the brunt of risk aversion in the FX space, down as much as 1.0 and 0.6 percent respectively against their leading counterparts.

Comments from Bank of Japan Governor Haruhiko Kuroda helped underpin the Yen. The central bank chief said that while officials will continue to push toward ending deflation, the BOJ has announced sufficient monetary easing. That suggested policymakers were in no hurry to supplement their efforts in the near term, reinforcing what seems to be an emerging tendency toward profit-taking on short-Yen positions. Indeed, after months of speculation about the introduction of “Abenomics” and its subsequent implementation, investors may be hard-pressed to find further fundamental fuel for Yen selling in the near term.

The German IFO Survey of business confidence headlines the economic calendar in European hours. Economists expect the data to print unchanged from the prior month, offering no meaningful directional guidance to the Euro or wider risk appetite. While Eurozone economic news-flow has tended to underperform relative to consensus forecasts according to data compiled by Citigroup, the tepid response to yesterday’s PMI roundup hints the markets may have put the recession in the currency bloc on the backburner in the near-term as the spotlight remains on the Fed and Yen-related matters.

S&P 500 index futures are trading flat in early European session hours having recovered from earlier losses, casting doubt over the direction of risk sentiment ahead of the opening bell on Wall Street. The US Durable GoodsOrders report rounds scheduled event risk for the week, with expectations pointing to a mild 1.5 percent recovery in April following a sharp 6.9 percent drawdown in the prior month. A supportive outcome may reinforce bets on near-term reduction in Federal Reserve QE efforts, boosting the US Dollar.

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Asia Session:

GMT

CCY

EVENT

ACT

EXP

PREV

22:45

NZD

Trade Balance (NZ$) (APR)

157M

480M

732M

22:45

NZD

Trade Balance YTD (NZ$) (APR)

-694M

-346M

-515M

22:45

NZD

Exports (NZ$) (APR)

3.95B

4.06B

4.41B

22:45

NZD

Imports (NZ$) (APR)

3.80B

3.60B

3.68B

1:35

CNY

MNI Flash Business Sentiment Indicator (MAY)

57.1

-

58.5

2:55

JPY

BOJ’s Kuroda Speaks at Nikkei Conference

-

-

-

Euro Session:

GMT

CCY

EVENT

EXP/ACT

PREV

IMPACT

6:00

EUR

German GDP s.a. (QoQ) (1Q F)

0.1% (A)

0.1%

High

6:00

EUR

German GDP n.s.a. (YoY) (1Q F)

-1.4% (A)

-1.4%

High

6:00

EUR

German GDP w.d.a. (YoY) (1Q F)

-0.2% (A)

-0.2%

High

6:00

EUR

German Domestic Demand (1Q)

0.0% (A)

0.0%

Low

6:00

EUR

German Private Consumption (1Q)

0.8% (A)

-0.3%

Low

6:00

EUR

German Capital Investment (1Q)

-1.5% (A)

-1.1%

Low

6:00

EUR

German Government Spending (1Q)

-0.1% (A)

0.1%

Low

6:00

EUR

German Construction Investment (1Q)

-2.1% (A)

-0.7%

Low

6:00

EUR

German Imports (1Q)

-2.1% (A)

-1.3%

Low

6:00

EUR

German Exports (1Q)

-1.8% (A)

-2.4%

Low

6:00

EUR

German GfK Consumer Confidence Survey (JUN)

6.2

6.2

Low

8:00

EUR

German IFO - Business Climate (MAY)

104.4

104.4

Medium

8:00

EUR

German IFO - Current Assessment (MAY)

107.2

107.2

Medium

8:00

EUR

German IFO - Expectations (MAY)

101.6

101.6

Medium

8:30

GBP

BBA Loans for House Purchase (APR)

32800

31227

Low

Critical Levels:

CCY

SUPPORT

RESISTANCE

EURUSD

1.2851

1.2986

GBPUSD

1.5038

1.5153

--- 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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