All eyes trained on Yen intervention talks, Bernanke speaks today

Market Brief

The JPY fell, reversing earlier gains versus the EUR and the USD, on speculation Japanese policy makers will take measures to halt the currency’s advance, weakening versus 15 of its 16 major counterparts after reports Prime Minister Naoto Kan will speak today on his policies to fight deflation and curb the JPY’s strength. The JPY also retreated after Japanese Finance Minister Yoshihiko Noda said that the nation’s currency situation is “severe” and the government is prepared to take appropriate action when necessary. The USDCHF headed for a second weekly loss on speculation Federal Reserve Chairman Ben S. Bernanke will signal the central bank keep interest rates near zero to spur growth. Speculation about Kan’s initiative “is halting the JPY’s strength, but there’s a risk for the currency to rise again if he disappoints the market.” The EURJPY climbed to 107.80, USDJPY gained to 84.70, heading for a 1.1% loss this week, USDCHF was at 1.0240, set for a 1% loss this week and EURUSD traded at 1.2723. Kan’s economic ministers will meet today to discuss the policies, including strengthening ties with the Bank of Japan as the ministers agree on the need to curb the Japanese currency’s rise as soon as possible. The Nikkei 225 rose 0.8% after falling as much as 1.1% earlier and the MSCI Asia Pacific Index climbed 0.3% following a decline of 0.4%.

Japan’s unemployment rate unexpectedly fell to 5.2% (exp. 5.3%) for the first time in six months in July as the economy added more jobs and the economy added 210,000 jobs, the most since January. The improvement in the unemployment rate may be a welcome development for Kan, who is trying to bolster growth with fresh stimulus measures to protect the economy from the JPY’s surge to a 15-year high against the USD. Japan’s consumer prices fell for a 17th month as economic growth cooled and the JPY’s advance lowered import costs with prices excluding fresh food slid 1.1%.

The USDJPY headed for a second weekly loss versus the JPY before a US report today that may show the recovery of the world’s largest economy is faltering. The US economy probably grew at a 1.4% (prev. 2.4%) slower than the last quarter. Bernanke is likely to elaborate on how much Fed officials or staff economists have cut their forecast for 2011 growth, as recently extreme weak economic data have increased the odds of a second round of quantitative easing. Further expansion of the Fed’s balance sheet and more direct efforts at recovery of the US economy will likely put downward pressure on the USD.

Today’s report may show consumer spending, which accounts for about 70 percent of the economy, rising at an unrevised 1.6% while purchases increased at 1.9%. A lack of job growth, declines in household wealth and housing and the drive to reduce debt and boost savings are reasons consumer spending may struggle to strengthen. Another report today may show consumer confidence improved this month with the University of Michigan consumer confidence probably rising to 69.6 (prev. 67.8).

Currency Tech

EURUSD
R 2: 1.3000
R 1: 1.2880
CURRENT: 1.2720
S 1: 1.2500
S 2: 1.2330

USDJPY
R 2: 87.10
R 1: 86.20
CURRENT: 84.75
S 1: 84.20
S 2: 83.80

GBPUSD
R 2: 1.5750
R 1: 1.5560
CURRENT: 1.5520
S 1: 1.5350
S 2: 1.5225

AUDUSD
R 2: 0.9200
R 1: 0.9070
CURRENT: 0.8872
S 1: 0.8810
S 2: 0.8725

• S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot