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JPY Correction Continues- EUR Persistently Carves Near-Term Top

JPY Correction Continues- EUR Persistently Carves Near-Term Top

2013-06-11 13:00:00
David Song, Currency Strategist
Share:
Forex_JPY_Correction_Continues-_EUR_Continues_to_Carve_Near-Term_Top_body_ScreenShot035.png, JPY Correction Continues- EUR Persistently Carves Near-Term Top

Talking Points

  • Japanese Yen: BoJ Retains Current Policy, Broad Range Ahead
  • Euro: ECB’s OMT Gains Support, More Non-Standard Measures Ahead
  • British Pound: U.K. Manufacturing Disappoints- RSI Turns Over

Japanese Yen: BoJ Retains Current Policy, Broad Range Ahead

The Japanese Yen rallied on the Bank of Japan (BoJ) interest rate decision, with the USDJPY tumbling to a low of 96.45, and the low-yielding currency may appreciate further over the near-term as the central bank adopts a neutral stance for monetary policy.

Indeed, the BoJ refrained from expanding its non-standard measures while retaining the current terms of funding for its bank-lending program, and we may see the central bank retain its current policy in the coming months as economic activity picks up.

Although Governor Haruhiko Kuroda pledged to further embark on the easing cycle, the pause in the central bank’s easing cycle may produce whipsaw-like price action across the Japanese Yen exchange rates, we may see the low-yielding currency trade within a broad range ahead of the next BoJ meeting on July 11 as market participants weigh the outlook for monetary policy.

Nevertheless, the low-yielding currency remains poised to depreciate further in the second-half of the year as the BoJ struggles to encourage positive price growth, and we may see the central bank take a more aggressive approach in achieving the 2% target for inflation in order to get the economy on a more sustainable path.

Euro: ECB’s OMT Gains Support, More Non-Standard Measures Ahead

The EURUSD extended the advance from earlier this week as European officials stood behind the Outright Monetary Transaction (OMT) program at the German court hearing, but the relief rally in the single currency may taper off in the coming days as the region remains mired in recession.

Indeed, German Finance Minister Wolfgang Schaeuble argued that the European Central Bank’s (ECB) non-standard measures are fully within its mandate and warned that the central bank’s independence needs to be respected as the Governing Council looks to steer the economy out of recession.

However, as the region struggles to return to growth, the ECB may come under increased pressure to implement more non-standard measures in the coming months, and the central bank remains poised to further embark on its easing cycle in the second-half of the year as President Mario Draghi pledges to do whatever it takes to save the monetary union.

As the EURUSD continues to carve a near-term top just below the 1.3300 figure, with the relative strength index approaching overbought territory, the advance from earlier this month looks poised to taper off in the coming days, but we may see the pair carve out a bullish trend over the near-term should we see the euro-dollar carve a low above the May low (1.2795).

British Pound: U.K. Manufacturing Disappoints- RSI Turns Over

The British Pound struggled to hold its ground on Tuesday amid the mixed batch of data coming out of the U.K., and the GBPUSD may continue to consolidate ahead of the Bank of England (BoE) Minutes due out on June 19 as market participants weigh the prospects for future policy.

Although industrial outputs climbed 0.1% in April, manufacturing contract 0.2 during the same period following the 1.1% expansion last month, and the persistent slack in the real economy may keep the BoE on the sidelines as it aims to encourage a sustainable recovery.

Indeed, the British Pound looks due for a near-term correction as the RSI on the GBPUSD turns over ahead of overbought territory, and the pair may consolidate further in the days ahead as it continues to come off of the 38.2% Fibonacci retracement from the 2009 low to high around 1.5680.FX Upcoming

Currency

GMT

EDT

Release

Expected

Prior

GBP

14:00

10:00

NIESR Gross Domestic Product Estimate (MAY)

0.8%

USD

14:00

10:00

Wholesale Sales (MoM) (APR)

-0.3%

-1.6%

USD

14:00

10:00

Wholesale Inventories (APR)

0.2%

0.4%

EUR

16:30

12:30

ECB's Peter Praet Speaks on Euro Economy

NZD

22:45

18:45

Card Spending (MoM) (MAY)

1.1%

NZD

22:45

18:45

Card Spending - Retail (MoM) (MAY)

0.5%

0.6%

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong

To be added to David's e-mail distribution list, please follow this link.

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