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Greenback and Yen Slide as Equities and Commodity Prices Rise

Tue, Jun 30 2009, 00:38 GMT
by Nick Nasad

CMS Forex

EUR/JPY - Euro Breaks Last Week's Resistance vs Yen

The Yen came under pressure today, as stocks rose in Europe and the US. Oil prices were higher as well fueling a sense of risk appetite to start the week. The Euro-zone put out a better than expected release which gave the currency a boost as well, giving the pair’s bulls the momentum they needed to break through the resistance seen last week near the 135 level. The pair’s rally stalled near 135.50 which is a resistance level from June 16th.

The Euro-Dollar, after falling overnight to the 1.40 level, rose back to test resistance near 1.41, which was Friday’s high. The same factors, stronger sentiment in equities, higher crude oil prices and better data gave traders the incentive to buy higher-yielding currencies, more riskier currencies.

Data from the Euro-zone showed higher than expected confidence in the economic outlook. The European Commission’s index of executive and consumer sentiment increased to 73.3 for June from 70.2 in May, which puts it at the highest level since November. Consumer confidence climbed 6 points higher to -25 while the industrial and services sector readings rose a more modest 2 and 3 points respectively.

In the UK, data showed that the number of mortgage approvals, as measured by the Bank of England, stayed steady in May at 43K, undershooting economists’ expectations. Mortgage lending was down as well, showing only a 300 million Pound increase, about a third the pace of last month. The data points to a stall in the recovery news for the UK housing sector.

With risk appetite up today, the Pound still managed to gain on the greenback despite its soft housing data. The pair tested the area around 1.66, coming against resistance from last week. We have been following this pair as it bounced back and forth between support and resistance and today we are up against the upper boundary of the sideways trading channel.

The Pound, like the Euro, did manage to break above its shorter term resistance levels from last week against the Yen. The Pound was higher overnight, but broke above its downward sloping line of resistance in early NY trading. It then rose all the way to 159.25, moving up above horizontal resistance near 158/50. The Yen was weaker against its rivals in the wake of a decrease in risk aversion, with several currencies setting new weekly highs against the Yen.

The Yen was pressured by weaker data as well. Overnight, data released show industrial production climbing less than expected for May. Output was up 5.9% on the month preliminary data showed. A second release showed retail sales down 2.8% on the year in May.

Trade data from New-Zealand was positive, with May showing the trade balance, when measured as a percentage of exports, at its largest surplus since June 1993. Exports outpaced imports by NZ$858 million, as imports fell and exports increased.

The New Zealand Dollar-US Dollar rose in favor of the Kiwi, breaking above its zone of resistance around the 0.6480 area to set a high at 0.6520. That is the highest the Kiwi has climbed since June 3rd. This pair has been in a consolidation and its worth monitoring if this break of resistance turns into a breakout or if we have a pump-fake and price action will dip back into the range that has been in effect most of the month.

Turning our attention to upcoming releases, there will be a slew of reports from Japan including data on manufacturing, consumer spending, employment, and housing. Also tonight, the UK will post a measure of consumer confidence, Australia releases data on new home sales and credit.

Overnight, Germany will post data on employment, the UK releases a measure of housing prices and its current account, while the Euro-zone releases its flash version of June’s consumer prices. Tomorrow, the US will post data on housing prices as well, along with the Chicago PMI and Conference Board consumer confidence index. Canada meanwhile, releases its monthly GDP figures and its producer prices.

Published on  Tue, Jun 30 2009, 00:41 GMT