The Japanese Yen fell on ebbing haven demand as risk appetite swelled overnight but the return of year-end flows may trigger a reversal and send the currency higher.
Talking Points:
Return of Year-Capital Flows May Reboot Pre-FOMC Price Action Trends
Yen Down, Aussie and NZ Dollars Higher as Risk Appetite Swells Overnight
See Economic Releases Directly on Your Charts with the DailyFX News App
The safe-haven Japanese Yen slumped while the sentiment-geared Australian and New Zealand Dollar advanced as risk appetite firmed overnight. The MSCI Asia Pacific regional benchmark stock index rose 1.1 percent in a move that appeared to reflect follow-on momentum from a sharp rally on Wall Street. S&P 500 futures are pointing firmly higher head of the opening bell in Europe, hinting at more of the same through the end of the trading week.
Seasonal factors complicate continued improvement in sentiment however. The markets went into this week’s top event risk – the FOMC monetary policy announcement – gripped by a year-end push to take profits on trades reflecting the dominant themes prevalent in 2014. While the outcome of the sit-down disrupted this process, liquidation may return as the dust settles and traders reconsider the implications of what the Fed delivered.
Swelling risk appetite – embodied by a relentless push upward by US share prices – and a firming US Dollar have been the defining features of the macro landscape in 2014. The resumption of profit-taking on these trades as the onset of 2015 approaches would imply another parallel downturn in the greenback and sentiment-geared assets.
Renewed USDJPY weakness seems to best embody both sides of another push in year-end capital flows. On one hand, risk aversion points to the unwinding of frequently Yen-funded carry trades. On the other, a market-wide reversal of Fed-inspired US Dollar buying is likely to put potent downward pressure on the pair considering its sensitivity to shifts in the expected yield differential.
FXCM, L.L.C.® assumes no responsibility for errors, inaccuracies or omissions in these materials. FXCM, L.L.C.® does not warrant the accuracy or completeness of the information, text, graphics, links or other items contained within these materials. FXCM, L.L.C.® shall not be liable for any special, indirect, incidental, or consequential damages, including without limitation losses, lost revenues, or lost profits that may result from these materials. Opinions and estimates constitute our judgment and are subject to change without notice. Past performance is not indicative of future results.
Recommended Content
Editors’ Picks
EUR/USD clings to gains above 1.0750 after US data
EUR/USD manages to hold in positive territory above 1.0750 despite retreating from the fresh multi-week high it set above 1.0800 earlier in the day. The US Dollar struggles to find demand following the weaker-than-expected NFP data.
GBP/USD declines below 1.2550 following NFP-inspired upsurge
GBP/USD struggles to preserve its bullish momentum and trades below 1.2550 in the American session. Earlier in the day, the disappointing April jobs report from the US triggered a USD selloff and allowed the pair to reach multi-week highs above 1.2600.
Gold struggles to hold above $2,300 despite falling US yields
Gold stays on the back foot below $2,300 in the American session on Friday. The benchmark 10-year US Treasury bond yield stays in negative territory below 4.6% after weak US data but the improving risk mood doesn't allow XAU/USD to gain traction.
Bitcoin Weekly Forecast: Should you buy BTC here? Premium
Bitcoin (BTC) price shows signs of a potential reversal but lacks confirmation, which has divided the investor community into two – those who are buying the dips and those who are expecting a further correction.
Week ahead – BoE and RBA decisions headline a calm week
Bank of England meets on Thursday, unlikely to signal rate cuts. Reserve Bank of Australia could maintain a higher-for-longer stance. Elsewhere, Bank of Japan releases summary of opinions.