Vantage FX | Trend changing for the Yen, AUD still pressured | 22nd November 2012

November 22, 2012

A quieter pre-holiday session overnight in stocks in the US as traders thoughts turn to the Thanksgiving Holiday tonight. The truce in Gaza helped the tone overall but the big news of the night was the huge selling of Yen as the poor trade data from yesterday combined with the election to suggest the BoJ just might get radical sometime soon.

Japan remains the world’s third largest economy but the data that is flowing at present speaks volumes for the malaise that is not only gripping the economy as a whole but also at a more granular level with regard to individual companies. Yesterday the trade data showed both exports and imports fell with the former down 6.5% year on year in October which was a much worse outcome than the market was looking for.

We’ve written much about the Yen lately and it remains our view that substantial weakness is still ahead for this currency   against the USD. Last night it also came under pressure across the board and as you can see on the weekly EURJPY chart above it is at risk of breaking up through a multi year down trend line stretching back to late 2009.

Fundamentally the Yen has been too strong for too long and the economy is suffering – its fall won’t be linear but this trend to Yen weakness looks set to continue.

Elsewhere overnight the meeting of European leaders to discuss the Greek situation broke up again without resolution and they are going to reconvene on Monday to have another try. This disappointed markets as you would expect and the sticking point seems to be that the IMF can”t participate unless they can see some improvement in the Greek position in the future – thus they fiddling with interest payment terms and other measures to get Greece over the line.

Stocks

But this didn’t seem to worry European stock markets overly with all of the European markets I follow except for Oslo ending in the black. The FTSE was 0.07% higher, the DAX rose 0.16% and the CAC was up 0.44%. Madrid rose 0.36% and Helsinki rose 0.93%.

In the US stocks traded in a fairly tight range in pre-holiday trade and with 25 minutes to go the S&P 500 is up 0.12% to 1390, the Dow Jones is up 0.31% and the NASDAQ is 0.24% higher. Jobless claims were out showing a big fall of 41,000 last week but this data is impacted by the recent Hurricane Sandy and as such are not market moving for the moment.

In Asia yesterday even with the weak trade data the Nikkei managed to head higher by another 0.87% percent. The Hang Seng was up 1.39% as 40 of the 49 companies in the index rose lead by the banks. The Kospi fell 0.32%, the ASX All Ords also fell and closed 0.38% lower while the Straits Times was essentially flat but Shanghai managed a 1.07% rally.

FX Markets

As noted above its all about the Yen and the Yen crosses at the moment as markets focus on the election and the potential for increased radicalism by the BoJ and money printing. It is a fair expectation because after 20 years what else can the Japanese Government of the BoJ do – if the Yen reflected the economy it would be well north of 100 but it has consistently outperformed its own economic circumstances for much of the GFC period – so in seeking to devalue the Yen or at least putting that in the minds of traders so the trend is slowly changing for the Yen and further weakness beckons over time.

Elsewhere on Global FX markets the Australian Dollar is off 0.25% to 1.0359, off the low of 1.0332 and well off the high for the past 24 hours just under 1.04 again. The Aussie is directionless against the USD at the moment but there is action on the crosses particularly AUDJPY which looks biased up toward 87 sometime soon – but its being driven by the Yen side of the cross as the Aussie is lagging at the moment.

As you can see in the AUDJPY 4 hour chart above the AUD is looking a little overdone and may be due for a pullback – 84.15 would be massive support and we favour this higher in time.

Euro is most unchanged against the USD at 1.2823 but that is almost a full cent off the low of 1.2733 overnight, while the GBP is up 0.1% to 1.5944 and also substantially off its lows of 1.5881.

Commodities

The EIA reported a decline in Crude supplies overnight of 1.5 million Bbl’s against the expected increase of 1 million bbl’s and even with the truce in Gaza  Crude managed to rally 0.63% to $87.30. Crude is in a shallow uptrend at the moment and retains a positive bias as a result.

In the precious metals market both silver and gold were higher with silver once again outpoint gold rising 1.21% to golds 0.27% rise. At $33.31 oz. Silver is close to downtrend resistance which comes in at $34.34 as you can see in the chart above

Datawise Thanksgiving in the US tonight but that doesn’t stop the flow of a huge volume of PMI’s coming out of China, France, Germany, Holland and the Eurozone. Also out are retail sales in Canada

Thoughts, comments, queries together with frank and fearless feedback all welcome. I’m happy to answer questions or comments on the comment stream wherever I can

NB: Please note all references to rates above are approximate and should not be used for trade reference.

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