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Forex: Retail Traders Retain Bets For JPY Intervention, Rebound In Risk To Be Short-Lived

Forex: Retail Traders Retain Bets For JPY Intervention, Rebound In Risk To Be Short-Lived

2011-03-17 13:30:00
David Song, Currency Strategist
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Talking Points

  • Japanese Yen: G7 To Meet On Nuclear Crisis
  • British Pound: Range-Bound Price Action Ahead
  • Euro: Maintains Upward Trend
  • U.S. Dollar: Consumer Prices, Industrial Production On Tap

Speculation for a currency intervention heightened following the marked appreciation in the Japanese Yen, but the Bank of Japan may continue to weigh alternative measures to stabilize the financial market as investor sentiment remains battered by the nuclear crisis. According to the DailyFX Speculative Sentiment index, retail traders remain net long against the USD/JPY, with the ratio standing at 4.28, but efforts to fade the sharp selloff in the exchange rate may fail to bear fruit as the BoJ funnels an additional JPY 6.0T into the financial system. As the USD/JPY remains heavily oversold, currency traders are certainly looking for a sharp correction in the exchange rate, but the exchange rate may hold steady throughout the remainder of the day as the G7 is scheduled to hold a special meeting tomorrow.

The Euro advanced to a fresh monthly high of 1.4052 following a rebound risk appetite, but the rally is likely to be short-lived as the flight to safety gathers pace. As nuclear crisis intensifies, the European Central Bank may delay raising the benchmark interest rate, and the Governing Council may look to support the real economy throughout the first-half of the year as the devastating earthquake in the Asia/Pacific region dampens the outlook for global trade. Nevertheless, market participants are still pricing a 100 percent chance for a 25bp rate hike in April according to Credit Suisse overnight index swaps, and expectations for higher borrowing costs should help to prop up the single-currency as it maintains the upward trend from earlier this year.

The British Pound bounced back during the overnight trade to maintain the range carried over from the previous week, and the sterling may continue to trend sideways ahead of the Bank of England policy meeting minutes due out on March 23 as investors weigh the prospects for future policy. The BoE’s quarterly survey showed inflation expectations increased to 4 percent from 3.9 percent in November to mark the highest reading since August 2008, and there could be a growing shift within the MPC as price pressures intensify. As market participants speculate the BoE to gradually normalize monetary policy this year, hawkish comments from the central bank could lead the GBP/USD to make another run at 1.6400, and the pair may continue to retrace the decline from back in 2009 as interest rate expectations gather pace.

The U.S. dollar lost ground against most of its major counterparts during the European trade, and the greenback may face increased selling pressures throughout the North American trade as equity futures foreshadow a higher open for the U.S. market. In turn, the rebound in risk appetite may gather pace going into the end of the week, but the dire situation in Japan could spark a shift in market sentiment as the region struggles to contain the aftermath of the natural disaster. Nevertheless, the economic docket is expected to show consumer prices in the world’s largest economy growing at an annual pace of 2.0% in February following the 1.6% expansion in the previous month, while industrial outputs are expected to increase 0.6% during the same period after contracting 0.1% in January. However, currency traders may show little reaction to the slew of event risks as the nuclear crisis takes center stage, and news coming out of Japan may continue to move the market as investor confidence remains tattered.

Will the EUR/USD Continue to Retrace the Decline From November? Join us in the Forum

Related Articles: Weekly Currency Trading Forecast

To discuss this report contact David Song, Currency Analyst: dsong@dailyfx.com

FX Upcoming

Currency

GMT

EST

Release

Expected

Prior

USD

12:30

08:30

CPI (MoM) (FEB)

0.4%

0.4%

USD

12:30

08:30

CPI (YoY) (FEB)

2.0%

1.6%

USD

12:30

08:30

CPI Core (FEB)

--

222.587

USD

12:30

08:30

CPI (FEB)

--

220.223

USD

12:30

08:30

CPI Ex-Food & Energy (MoM) (FEB)

0.1%

0.2%

USD

12:30

08:30

CPI Ex-Food & Energy (YoY) (FEB)

1.0%

1.0%

USD

12:30

08:30

Continuing Claims (MAR 5)

3750K

3771K

USD

12:30

08:30

Initial Jobless Claims (MAR 12)

388K

397K

CAD

12:30

08:30

International Securities Transaction (CAD) (JAN)

6.000B

9.626B

CAD

12:30

08:30

Wholesale Sales (MoM) (JAN)

0.5%

0.8%

USD

13:15

09:15

Industrial Production (FEB)

0.6%

-0.1%

USD

13:15

09:15

Capacity Utilization (FEB)

76.5%

76.1%

USD

13:45

09:45

Bloomberg Consumer Comfort (MAR 13)

--

--

USD

13:45

09:45

Bloomberg Economic Expectations (MAR)

--

4

USD

14:00

10:00

Philly Fed (MAR)

30.0

35.9

USD

14:00

10:00

Leading Indicators (FEB)

0.9%

0.1%

Currency

GMT

Release

Expected

Actual

Comments

NZD

21:00

Westpac NZ Consumer Confidence (1Q)

--

97.9

Continues recent weakening trend

JPY

23:50

Tertiary Industry Index (MoM) (JAN)

1.4%

2.1%

Rebounds from contraction in Dec.

CHF

08:15

Industrial Production (QoQ) (4Q)

4.6%

7.4%

Fastest growth since Q2 ‘08

CHF

08:15

Industrial Production (YoY) (4Q)

6.3%

6.1%

Rebounds from contraction in Q3

CHF

08:30

Swiss National Bank Interest Rate Decision

0.25%

0.25%

SNB stands pat as outlook remains balanced

EUR

10:00

Euro-zone Construction Output (MoM) (JAN)

--

1.8%

Expands after 6 straight contractions

EUR

10:00

Euro-zone Construction Output (Yoy) (JAN)

--

-4.5%

7th straight contraction

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