News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site. See our updated Privacy Policy here.



Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events


Economic Calendar

Economic Calendar Events

Free Trading Guides
Please try again
Oil - US Crude
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
More View more
Yen Extends Gains as US Government Stays Shut; Euro Weak Ahead of ECB

Yen Extends Gains as US Government Stays Shut; Euro Weak Ahead of ECB

Christopher Vecchio, CFA, Senior Strategist

Talking Points:

- US government remains closed as Congress remains gridlocked.

- Italian government issues dissipate; Euro vulnerable with ECB later today.

- Commodity bloc breaks down – a sign of risk-aversion looming.

To receive this report in your inbox every morning, sign up for Christopher’s distribution list.










(vs USD)








Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): -0.04% (-0.41%prior 5-days)


Frustrated by Prime Minister Shinzo Abe’s fiscal stimulus plans, investors have ditched risk assets and turned back to the Japanese Yen as the favored safe haven amid gathering storm clouds in Europe and North America. While the Italian political debacle evolves – it appears that Prime Minister Enrico Letta will retain the coalition, but will lose overall support in the Senate – the US fiscal debate looms large, aiding the shift into ‘safer’ assets.

The United States’ own political turmoil is just starting to permeate markets, with Markit Economics, the firm behind the global PMI surveys, noting that the CDS curve for US government debt has inverted (1Y CDS > 5Y CDS) for the first time since July 2011 – an ominous sign indeed. With fears that the funding showdown could spill over into a cantankerous debt ceiling fight, the Yen has been duly aided by slipping US equity markets and strengthening US Treasuries.

The Yen’s next big move could come against the Euro today as the European Central Bank meets. While the policy decision itself is expected to be bland – no change in any rates, no changes to any non-standard measures – all eyes are on ECB President Mario Draghi’s press conference at 08:30 EDT/12:30 GMT.

Whereas Euro-Zone data ticked higher midyear, recent economic reports suggest that the rebound may be cooling off. Most notably, Euro-Zone inflation has fallen back to its lowest level since February 2011, a post-GFC low; and Euro-Zone banks’ capital levels (via excess reserves) have receded back to December 2011 levels. This adds up to weak credit growth, which ECB President Draghi has and will continue to harp on (which was EUR-negative in August).

Accordingly, we don’t expect another LTRO – the measure used to help banks restart lending vis-à-vis capital injections – but the ECB should outline all of the data that suggest another one might be useful over the coming months. As such, we believe the Euro will be highly-sensitive to any dovish rhetoric with risks skewed to the downside amid any indication that the ECB is considering a third LTRO.

EURJPY 5-minute Chart: October 2, 2013 Intraday

Yen_Extends_Gains_as_US_Government_Stays_Shut_Euro_Weak_Ahead_of_ECB_body_x0000_i1027.png, Yen Extends Gains as US Government Stays Shut; Euro Weak Ahead of ECB

Taking a look at European credit, reports that Italian PM Letta will retain control have helped lift the Euro as near-term political risks have seemingly abated. The Italian 2-year note yield has decreased to 1.679% (-6.3-bps) while the Spanish 2-year note yield has increased to 1.355% (+2.3-bps). Likewise, the Italian 10-year note yield has decreased to 4.345% (-6.4-bps) while the Spanish 10-year note yield has increased to 4.195% (+4.0-bps); lower yields imply higher prices.

Read more: Dollar Down as Government Closes; Abe Tax Drops USD/JPY Under ¥98


Yen_Extends_Gains_as_US_Government_Stays_Shut_Euro_Weak_Ahead_of_ECB_body_Picture_1.png, Yen Extends Gains as US Government Stays Shut; Euro Weak Ahead of ECB

See the DailyFX Economic Calendar for a full list, timetable, and consensus forecasts for upcoming economic indicators. Want the forecasts to appear right on your charts? Download the DailyFX News App.

--- Written by Christopher Vecchio, Currency Analyst

To contact Christopher Vecchio, e-mail

Follow him on Twitter at @CVecchioFX

To be added to Christopher’s e-mail distribution list, please fill out this form

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.