Daily Report: Yen Soared as Risk Markets Tumbled on Geopolitical Risks

Yen surged further today as risk aversion sent Nikkei down -454 pts, or -2.98% to close at 14778.37. That’s the biggest fall in 5 months and the index hit a 2-month low. It should be noted that the steep fall was also accompanied by strong volume, as futures volume hit the highest level in 6 months. In addition, to the tensions in Ukraine, markets are reminded of the geopolitical risks in Iraq again. US President Obama authorized air strikes in Iraq which might stir up even more tensions in the region. In the current markets, Swiss Franc and Euro were so far the second and third strongest currency this week. And commodity currencies are generally hit by the sour sentiments.

The BOJ today left the asset buying program to increase the monetary base at an annual pace of 60 to 70 trillion yen. In the policy statement, policymakers indicated that “exports have shown some weakness”. This was compared with the language in July that “exports have recently leveled off more or less”. On industrial production, the BOJ acknowledged that output “has continued to increase moderately as a trend, although it has recently shown some weakness”. In July, the central bank noted that production had “continued to increase moderately as a trend, albeit with some fluctuations”. Also released from Japan, current account surplus narrowed to JPY 0.13T in June and bank lending rose 2.2% yoy in July.

China’s trade surplus widened to USD 47.3b in July from USD 31.56b a month ago. The record high reading was driven by acceleration of exports growth and decline in imports. Exports rose 14.5% yoy to USD 212.9b, following a 7.2% increase in June, whilst imports fell -1.5% yoy to USD 165.6 , after a 5.6% increase in June. Despite the strong headline reading, the details unveiled sluggish domestic demand as commodity and component imports dropped.

Elsewhere, Australia home loans rose 0.2% in June versus expectation of 0.7%. Swiss unemployment rate was unchanged at 3.2% in July. German trade surplus narrowed to EUR 16.2b in June. UK will release trade balance and construction output. US will release productivity and wholesale inventories. A focus will be employment data from Canada in US session.

Daily Pivots: (S1) 171.48; (P) 172.04; (R1) 172.39; More…..

GBP/JPY’s fall accelerates to as low as 170.69 so far today and intraday bias remains on the downside. The near term trend has reversed and indeed, 175.36 could be a medium term bottom too. Further fall should be seen to 169.53 key support level for confirmation. On the upside, above 172.60 resistance is needed to sign short term bottoming. Or outlook will stay bearish in case of recovery.

In the bigger picture, the up trend from 116.83 (2011 low) continued to lose upside momentum. This could be seen in bearish divergence condition in daily MACD. And, weekly MACD continued to trend down. There is no clear sign of reversal yet but a medium term top should be near. So, in case of another rise, we’d expect strong resistance below 50% retracement retracement of 251.09 to 116.83 at 183.96 to bring reversal. Meanwhile, sustained break of 169.53 support should confirm medium term topping and turn outlook bearish.

GBP/JPY 4 Hours Chart

GBP/JPY Daily Chart

GMT
Ccy
Events
Actual
Consensus
Previous
Revised
23:50
JPY
Current Account (JPY) Jun
0.13T
0.11T
0.38T

23:50
JPY
Bank Lending incl Trusts Y/Y Jul
2.20%

2.30%

1:30
AUD
Home Loans Jun
0.20%
0.70%
0.00%
-0.10%
2:00
CNY
Trade Balance Jul
$47.3B

$31.56B

3:00
JPY
BoJ Monetary Policy Statement

5:45
CHF
Unemployment Rate Jul
3.20%
3.20%
3.20%

6:00
EUR
German Trade Balance (EUR) Jun
16.2B
19.8B
17.8B
18.8B
8:30
GBP
Visible Trade Balance (GBP) Jun

-8.9B
-9.2B

8:30
GBP
Construction Output M/M Jun

1.10%
-1.10%

12:30
CAD
Net Change in Employment Jul

25.4K
-9.4K

12:30
CAD
Unemployment Rate Jul

7.00%
7.10%

12:30
USD
Non-Farm Productivity Q2 P

1.40%
-3.20%

12:30
USD
Unit Labor Costs Q2 P

1.30%
5.70%

14:00
USD
Wholesale Inventories Jun

0.60%
0.50%

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