Yen rallied on strong carry trade unwinding as risk appetite fades

The Dollar rose against the Euro on Wednesday, while the Yen gained against majors on renewed concerns the US government's $250bio proposed injection into troubled banks may have little effect on financial sector recovery. The low-yielding Yen rallied as risk appetite slows and investors rush to get out of trades in higher-yielding currencies and assets financed with cheaply borrowed Yen. Federal Reserve Chairman Ben Bernanke added to market tension when he said, before the Economic Club of New York, it will take time to restore normal flows of credit but he pledged that the Fed would continue to act aggressively to fight the crisis. The European Central Bank on Wednesday said it will allow banks to swap a larger range of their assets for central bank funds and offer more funds across a range of currencies in its latest attempt to combat the punishing financial crisis.
News and Events:


The Dollar rose against the Euro on Wednesday, while the Yen gained against majors on renewed concerns the US government's $250bio proposed injection into troubled banks may have little effect on financial sector recovery. Federal Reserve Chairman Ben Bernanke added to market tension when he said, before the Economic Club of New York, it will take time to restore normal flows of credit but he pledged that the Fed would continue to act aggressively to fight the crisis.

High-yielding currencies such as the Australian and New Zealand Dollars also slid as world stocks slumped, ending a rally seen earlier this week after US and European governments announced sweeping bank rescue plans. The low-yielding Yen rallied as risk appetite slows and investors rush to get out of trades in higher-yielding currencies and assets financed with cheaply borrowed Yen.

Yesterday, EurUsd fell 0.94% to 1.3438 near 1.3424 session low. Also, EurJpy dropped 3.11% to 133.47; it’s lowest on the day. UsdJpy dropped 2.19% to 99.34, this week lowest. GbpJpy fell 3.37% to 170.77. UsdChf was 0.44% lower at 1.1335. GbpUsd fell 1.2% to 1.7194. AudUsd fell 5.58% to 0.6561. AudJpy and NzdJpy fell respectively 7.65% to 65.17 and 6.39% to 59.33 on carry-trade unwinding. UsdCad rose 2.35% to 1.1925 as oil prices fell.

The European Central Bank on Wednesday said it will allow banks to swap a larger range of their assets for central bank funds and offer more funds across a range of currencies in its latest attempt to combat the punishing financial crisis. It will also start offering unlimited long-term euro funds at fixed interest rates and hold its first-ever open market foreign exchange swaps to provide extra liquidity in Dollars and Swiss francs to euro zone banks. Still some analysts said credit tightness, while less severe than a week ago, was still evident, which has left some investors reluctant to part with their cash rather than putting it into higher-yielding investments.





Today's Key Issues (time in GMT):


07:15 CHF August Retail Sales 4% vs 6.2%
07:30 SEK September Unemployment 5.6% vs 5.2%
09:00 CHF October ZEW Investor sentiment -44.4
12:30 USD September CPI ex-food/energy 0.2% vs 0.2% (mom)
12:30 USD September CPI ex-food/energy 2.5% vs 2.5% (yoy)
12:30 USD September CPI inflation 0.1% vs -0.1% (mom)
12:30 USD September CPI 5% vs 5.4% (yoy)
12:30 USD weekly Initial claims 475k vs 478k
12:30 CAD August Manufacturing sales -1% vs 2.7%
13:15 USD September Capacity utilization 77.9% vs 78.7%
13:15 USD September Industrial output -0.8% vs -1.1%
14:00 USD October Philadelphia Fed business index -10 vs 3.8
16:00 USD Fed’s Stern speaks in Houghton
17:00 USD October NAHB housing market index 17 vs 18
18:00 EUR ECB’s Gonzalez-Paramo speak
23:50 JPY August Tertiary sector index -0.8% vs 1.2%
The Risk Today:

EurUsd:
Market drove back below 1.3500 pivot level. Market fell yesterday 0.94% to 1.3438. On the upside, only a return over 1.4000 and 1.5000 will release actual pressure and may put key initial resistance 1.6000 into focus. Still a break up there would open the way to Trendline resistance 1.6200. Resistance holds 1.4002 former trendline support. Initial resistance holds 1.3769 Tuesday high. On the downside, renewed weakness will focus on 1.3056 support (retracement of 0.8231 – 1.6039 advance). Initial support holds 1.3259 Friday low.


GbpUsd:
Last week market dropped as low as 1.6786 strong support. It recovered Tuesday at 1.7631 intraday high. On the upside, strong resistance holds 1.7697 last week high ahead of 1.8304 former support. But renewed downtrend may look for 1.6568 November 2003 low and 61.8% retracement of 1.3682–2.1161 advances). Following supports are 1.4560 trendline and 1.3682 March 2001 low.


UsdJpy:
Downtrend started in September is still running and hit 97.91 low Friday. Tuesday market 103.07 rebound marks initial resistance. On the further upside, recovery over 105 pivot point will put focus again on 108 and 110.67 15th August high. On the downside, renewed pressure may open the way to 95.75 17th March low. Current downtrend will stand below 103 upper trendline resistance.


UsdChf:
Market posted 1.1491 high yesterday. Further advance may open the way to 1.1596 December high and strong resistance. Initial support holds 1.1129 Friday low. On the downside, only weakness below 1.0692, 22nd September low, would give direction or open the way down to 1.0500 and 1.0375. Such a move may look for 1.0013 15th July low in front of 0.9637 17th March low.



Resistance and Support:



By
Jean-Claude Braha
- ACM Advanced Currency Markets, Geneva, Switzerland
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Provided by ACM: http://www.ac-markets.com