Mid-Day Report: Yen Surges as Portugal Woe Hits Markets, BoE on Hold

The Japanese yen jumps sharply today as markets are hit by risk aversion over trouble in Portugal. At the time of writing, European indices are broadly lower, with DX lowing over -1.5%, CAC losing over -1.7% and FTSE losing over -0.8%. US futures also point to sharply lower open. It’s reported that the parent company of a Portuguese bank delayed payments on some short-term debts and the news triggered selloff in shares of banks across southern Europe. USD/JPY took out 101.23 near term support and is heading back to 100.65/82 key support zone. Released from US, initial jobless claims dropped to 304k in the week ended July 5, below expectation of 316k. The four week moving average dropped from 315k to 312k. Continuing claims rose 10k to 2.58m in the week ended June 28.

St Louis Fed Bullard said yesterday that US is going to “overshoot” on inflation and he predicated it would reach 2.5% by the end of 2015. He noted “when unemployment goes into the five range, that is going to below the natural rate.” And, the special factors, including European economic weakness, are “wearing off” and that would send inflation “above target in 2015. Fed also released FOMC minutes yesterday but was largely ignored by the markets. More in Fed To End Tapering In October, No Hints On First Rate Hike.

Sterling is steady after BoE kept policies unchanged as widely expected. That is, interest rates was held at 0.50% and asset purchase target kept at GBP 375b. Only a brief statement was released and focus will turn to meeting minutes to be published on July 23. Released from UK, trade deficit came in wider than expected at GBP -9.2b in May. RICS house price index dropped to 53 in June.

ECB said in the monthly bulletin that “introducing more radical reform packages, for example by targeting the best performers in the EU or the United States, could boost GDP in the long run by double digits”. Meanwhile, ECB president Draghi said in a speech in London that countries should respect the EU Fiscal Compact on lowering public debt and “what is essential now is that these rules are enforced.”

Released earlier today, Australian employment data showed 15.9 growth in June versus expectation of 12.0k. Unemployment rate, however, rose more than expected to 6.0%. New Zealand business NZ manufacturing index improved to 53.3 in June. Japan domestic CGPI rose 0.2% mom in June, tertiary industry index rose 0.9% mom in May, machine orders dropped -19.5% mom.

Daily Pivots: (S1) 101.44; (P) 101.64; (R1) 101.85; More…

USD/JPY drops sharply today and took out 101.23 support. Intraday bias remains on the downside for 100.65/82 key support zone. Decisive break there will have larger bearish implications and will target 96.56 support next. On the upside, above 101.44 minor resistance will argue that recent sideway trading is going to extend and will turn bias neutral first.

In the bigger picture, medium term up trend from 75.56 is in form of a five way impulsive move with rise from 96.56 as the fifth leg. There is no confirmation of reversal yet but a medium term top should be near, if not formed. Decisive break of 100.61 support will argue that USD/JPY has already topped out in medium term at 105.41 and should bring deeper fall back to 38.2% retracement o 75.56 to 105.41 at 94.00. In case of another rise, we’ll focus on reversal as it approaches 50% retracement of 147.68 to 75.56 at 111.62.

GMT
Ccy
Events
Actual
Consensus
Previous
Revised
22:30
NZD
Business NZ Manufacturing Index Jun
53.3

52.7
52.6
23:01
GBP
RICS House Price Balance Jun
53%
55%
57%
56%
23:50
JPY
Domestic CGPI M/M Jun
0.20%
0.10%
0.30%

23:50
JPY
Tertiary Industry Index M/M May
0.90%
1.70%
-5.40%
-5.70%
23:50
JPY
Machine Orders M/M May
-19.50%
0.70%
-9.10%

01:30
AUD
Employment Change Jun
15.9K
12.0K
-4.8K

01:30
AUD
Unemployment Rate Jun
6.00%
5.90%
5.80%

05:00
JPY
Consumer Confidence Index Jun
41.1
40.3
39.3

08:00
EUR
ECB Monthly Bulletin

08:30
GBP
Visible Trade Balance (GBP) May
-9.2B
-9.0B
-8.9B
-8.8B
11:00
GBP
BoE Rate Decision
0.50%
0.50%
0.50%

11:00
GBP
BoE Asset Purchase Target Jul
375B
375B
375B

12:30
CAD
New Housing Price Index M/M May
0.10%
0.20%
0.20%

12:30
USD
Initial Jobless Claims (JUL 5)
304K
316K
315K

14:00
USD
Wholesale Inventories May

0.60%
1.10%

14:30
USD
Natural Gas Storage

100B

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