The JPY shrank as investors' risk appetite increased

Good morning from beautiful Hamburg and welcome to our second last Daily FX Report in this week. The JPY slid against all of its major counterparts as Asian stocks rallied and the U.S. economy strengthened further. Today, investors are awaiting the release of a range of important economic data.

Market Review – Fundamental Perspective

Yesterday, speculations were known that the Swiss National Bank started again interventions to defend their minimum exchange rate of 1.20 as well as the threatening deflation and export contractions as the downside pressure of the EUR remained still high due to the ongoing economic turmoil of the European Union. In addition, the central bank reserves climbed 11.3 percent in the past months and reached a record amount of 406.5 billion CHF. But all spokesmen of the SNB refused any comment or confirmation of the rumors. But SNB President Jordan emphasized in a statement the willingness for unlimited foreign currency purchases.

Triggered by the strengthening of the U.S. economy, the demand for the JPY shrank as investors’ risk appetite increased. Recently, the popularity of U.S. assets rallied to the highest within six weeks. But the Housing data may lower the probability for further monetary interferences by the Federal Reserve to depreciate the USD. In contrast, econmists forecasted that home construction data will rank around the four-year peak at 756,000 and also the housing permits advanced to 769,000 in July from 760,000 the previous month. The two-year U.S. Treasuries yields appreciated to 20 basis points above its Japanese counterpart, the strongest since the 3rd of July. For the five-year government bonds, the Federal Reserve offered interest rates which are 59 basis points above the Japanese one. This attracts many investors of JPY based assets to switch their capital to offshore paces. Therefore the JPY weakened against all currency peers and dropped 0.1 percent to 79.08 versus the USD by touching 79.15, the lowest since the mid-July. Also, the 17 nations’ currency enforced 0.2 percent to 97.25 JPY from 97.08 the day before, establishing the fourth daily gain in a row, while the EUR added 0.1 percent towards the USD and fetched to 1.2297.

The NZD benefited from rising milk powder prices for October delivery after an Internet-based auction by Fonterra, the world largest producer, and climbed to 80.79 U.S. cents.

Daily Technical Analysis - (In this section we provide chart analysis)

EUR/USD (Daily) – Price Performance Sours The Tone

The EUR/USD price performance on the daily chart still gives some indications that an optimistic outlook is still justified, but since the decline yesterday there will be soon more arguments against a swift and continued recovery of the pair.

Waning hopes of a new round of quantitative easing measures by the US Fed are the major argument. On the other hand the actors keep on asking themselves what the European Central Bank (ECB) will do to help Euroland. Subsequently, the drop yesterday did not only cause diminishing market technical indicators, primarily momentum and directional filter. The chart technical indicators followed this development and do not meet the requirements for a downtrend any longer. Although we have seen several base buildings at rising levels, the last high (Tuesday`s high) failed to materialize a sustained follow-thru thus interrupting the “series of rising highs”. Therefore we now focus on the support level at 1.2242 USD. In the event that this level cannot be contained the “last” of the rising lows during this trend fractal since July would be broken, more downside towards 1.2132 USD is likely forthcoming.

As a consequence we remain „trading neutral“, but we have, however, to restrict our positive overall outlook for the medium term. “There is currently some indication that EUR/USD will move southwards”, a questioned trader said yesterday evening.

EUR/GBP (Daily) – A Downtrend Emerging

Apparently, the recent EUR/GBP recovery has not been a base building within a downwards reaction, but could also have been a temporary reaction within a continuing emerging downtrend. Therefore we focus on the action low of Friday last week at 0.7829 GBP which was pierced briefly.

If this breach is confirmed a formal intact downtrend might be in place (in the sense of its definition). The next lower target support can be deduced from the 0.7791 GBP area.

Watch the dampening market technical indicators. The directional filter set-up is neutral going along with a diminishing momentum.