Japan has experienced mostly a period of deflation

Good morning from foggy Hamburg and welcome to our last Daily FX Report for this week. Due to the military action by the government in Kiev against the pro-Russian separatists with several victims, the rhetoric between Russia and Kiev with its Western allies has notably intensified in the past days. Furthermore, the Russian Minister of Foreign Affairs veiled threats regarding a potential military intervention in East Ukraine, while centering armed forces on the border.

However, we wish you a relaxing weekend!

Market Review – Fundamental Perspective

Paying tribute to the increased danger of a military escalation in the Ukraine, the demand for so called “haven” currencies boosted and pushed the JPY close to a weekly high against the USD. The situation entered a new threatening step after U.S. Secretary of State Kerry appealed to Russia that the remaining time for a peaceful resolution is running out and that each further step might lead to a military escalation in the region. As a result, the USD is targeting a weekly drop towards the 18 nation’s currency, before the Federeal Reserves monthly gathering next week. Besides the Federal Reserve, also the Bank of Japan is scheduled to have its monthly meeting next week. Yesterday releasing data confirmed that the prices in the Tokyo area appreciated on the fasted pace in more than 20 years and succeeded to add 2.7 percent in April from a year earlier, which is also an indicator that the nation’s inflation accelerated toards the central bank’s target of 2 percent. In March, the inflation was already at 1 percent. But economists by Bloomberg News have forcasted a surplus of 2.8 percent for this month. In the last two decades, Japan has experienced mostly a period of deflation. Therefore, the JPY held yesterday’s level and traded at 102.45 versus the USD after having gained 0.2 percent and touched 102.09 the day before, the highest since the 17th weekly rise of 0.2 percent. Also the USD is probably establishing a five-day drop by 0.1 percent against the EUR and remained nearly unchanged at 1.3830 compared to a day earlier. Referring to the Bloomberg Correlation-Weighted Indexes, the JPY has showed the best performance and has climbed 2.3 percent since the beginning of the year, while the USD weakened 0.8 percent and the EUR 0.1 percent in the same period. The Bloomberg Correlation-Weighted Indexes track the performance of the ten most trading currencies against each other.

Daily Technical Analysis

GBP/AUD (4 Hours)

From its five months-low around 1.7746, the GBP has been advancing inside a bullish Standard Deviation channel to the resistance level around 1.8158, where a first test failed yesterday. Although, the Bollinger Bands are showing signs for narrowing again, the Stochastic is leaving its overbought market zone, while MACD and Momentum are still bullish. Therefore further wins might be seen if the rate succeeds to cross the close resistance in the next attempt. Otherwise losses or a sideways trend are more than likely.

Support & Resistance (4 Hours)