Yen Benefits as Investors Shift Assets from Troubled Euro Zone
The Japanese Yen rose on Thursday as investors shifted
assets out of the troubled Euro Zone on renewed budget turmoil in Greece.A spike in the cost to insure Greeceâ€™s
sovereign debt triggered a flight to safety rally which fueled a turnaround in
the Yen after earlier weakness.News
that a similar situation is developing in Portugal also contributed to the
Yenâ€™s strength.The Euro fell to it
lowest level against the Dollar as the news broke.
Traders had been cautiously removing risk from the Euro the
past couple of days after a report earlier in the week showed great interest in
a possible bailout bond issuance from Greece. Todayâ€™s action indicates
that the situation is growing worse and that the Yen may soar at the expense of
the Euro over the short-run.
After trading relatively flat in the hours before the New York opening, the
U.S. Dollar strengthened close to midday as investor sentiment shifted back
toward safety.Late yesterday and overnight,
the Dollar appeared to be ready to weaken as demand for higher risk assets
began to pick up following upbeat news from the Fed and a well-received speech
from President Obama.
Shortly before the New York
opening, news began to leak about Greece
debt concerns causing the U.S.
stock market to sell sold off.The
release of less than stellar U.S.
economic reports triggered additional selling pressure as investors pared
equity market positions in anticipation of an economic slowdown. This rattled
traders who then began selling higher price assets while seeking safety in the
lower yielding U.S. Dollar and Japanese Yen.
The EUR USD traded under pressure throughout the session
while taking out sell stops under the psychological 1.40 level. Todayâ€™s selling
pressure was been triggered by news that Greeceâ€™s budget woes have
resurfaced, sending the price to insure its debt against default to a new high.For several days, traders had become
complacent while under the belief that a new bond issuance would make the Greek
debt problems go away.1.3800 remains
the most likely downside target.
The British Pound is traded lower but remained inside of its
five day range. Itâ€™s hard to tell at this time which direction investors
prefer.Fear, and demand for lower risk
is likely to drive the market lower. Renewed confidence in the economy could
limit losses or fuel the start of a rally.
Demand for safer assets helped turnaround the USD JPY,
erasing earlier gains. During the wee hours of the morning, the Dollar was rallying
versus the Yen after completing a 50% retracement and a closing price reversal
bottom. The catalyst for the rally was an upbeat statement by the Fed and
optimism generated by Obamaâ€™s speech. A sell-off in U.S.
equity markets and budget problems in Greece
however, sent traders scrambling for safety, sending the USD JPY lower. This
currency pair is probably the best indicator as to how bad the situation is
and the Euro Zone.
Overbought conditions and profit-taking helped to pressure
the USD CAD early but the sell-off in U.S. equity markets changed risk
sentiment, triggering an intraday reversal. Look for the Canadian Dollar to
feel pressure as long as investors continue to shun risk. Lower crude oil and
gold are also contributing to the strength in the USD CAD.
The USD CHF held on to early gains after an overnight rally
took this market through the December high at 1.0507.A new main bottom has been formed at
1.0367.This market is rapidly
approaching overbought status and could begin a correction at any time. Watch
for a closing price reversal to signal the formation of a top. Weakening gold
and the possibility of an intervention by the Swiss National Bank are the
fundamentals driving this market at this time.
The intraday break in U.S. equity markets triggered a
break from the high in the AUD USD as traders dumped risky assets.A similar situation developed in the NZD USD
as traders became more risk averse and decided to re-enter on the short side of
the market or liquidate losing long positions. Watch for volatility the next
few days in the Aussie as traders positions themselves ahead of the next
Reserve Bank of Australia
meeting on February 2nd. Conditions have changed since the last meeting which
makes it look like a safe bet that the central bank will not hike interest
rates for a third consecutive time.
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