Daily FX Market Review-8-9-2010

Market Review – 07/09/2010 22:01 GMTYen surges to a fresh fifteen-year high against dollar after BOJ’s Shirakawa’s comments

The greenback fell sharply against the Japanese yen on Tuesday, as the Bank of Japan Governor Shirakawa’s comments increased speculation that Japan was not ready to weaken the Japanese yen’s strength and renewed concerns over eurozone banking system sparked off risk aversions to boost demand of yen and the Swiss franc.   
  
The greenback dropped from 84.27 against the Japanese yen in Asia and penetrated 84.00 to 83.73 in part due to the comments from BOJ Governor Shirakawa, as he said ‘BOJ won’t react to short-term forex, stocks moves’. He said strong yen might prompt firms to hold off on CAPEX and monetary authorities could not control forex rates. Despite dollar’s minor correction from there, the greenback then fell below previous 83.58 low to a fresh 15-year low of 83.51 in NY before recovering on profit-taking.  
  
The greenback was pressured on risk aversions due to renewed concerns over eurozone banking system, as Wall Street Journal earlier reported that the recent European banks’ stress test had understated some lenders’ holdings of potentially risky sovereign debts, and the costs of insuring many banks and sovereign bonds against default in countries like Portugal, Ireland, Italy and Greece had jumped above their pre-stress-test levels.  
  
Cross buying in yen also pressured the greenback, as eur/jpy, gbp/jpy and aud/jpy tanked from 108.39 to 106.26, 129.60 to 127.93 and 77.27 to 76.21 respectively.  
  
Earlier in Asia, BOJ kept overnight call rate target unchanged at 0.1%. The central bank maintained economic assessment that the Japanese economy was showing further signs of moderate recovery and was likely heading for recovery trend but needed to watch downside economic risks.   
  
DPJ’s lawmaker Tsutomu Okubo said BOJ should abolish its self-imposed limit in buying long-term JGBs to enhance the central bank’s ability to finance stimulus spending.   
  
The single currency nose-dived from 1.2877 in Australia on active cross-selling in euro due to the early news from Wall Street Journal about eurozone banking system. Later, the single currency fell further to 1.2736 in Europe after the release of much weaker-than-expected German industrial orders. Euro eventually sank to 1.2677 ahead of NY closing on cross selling in euro especially versus the Swiss franc as eur/chf tumbled from 1.3025 to a fresh lifetime low of 1.2812.  
  
German industrial orders dropped by 2.2% versus the economists’ forecast of a rise of 0.5%.   
  
Earlier, EU’s Rehn said ‘it is important to underline that while we have stabilised the situation in the spring and during the summer concerning financial stability in the euro area, we are certainly not out of the woods yet and that calls for strong solidarity and strong commitment by all euro area countries with respect to the euroarea and euro’.  
  
Although the British pound rose from 1.5353 on short-covering after the release of BRC sales data , which showed that UK retail sales values rose 1.0% y/y in August versus July’s +0.5% and the increase was largely due to weak sales figures a year ago, and climbed to an intra-day high of 1.5425, selling interest emerged at there and cable tumbled to 1.5296 due to the selloff in euro on renewed concerns over eurozone banking system before staging a recovery due to cross buying in sterling versus euro (eur/gbp tumbled from 0.8363 to 0.8253).  
  
In global equities, DJI tanked on Tuesday due to renewed concerns over European banks and closed the day at 10341, down by 107 points, or 1.03%. FTSE-100, CAC-40 and DAX fell by 0.58%, 1.11% and 0.60% respectively.  
  
Economic data to be released on Wednesday include:   
  
Japan Trade balance (jpy), Current account, Machine orders, Economic watch DI, BOJ’s September report, Germany Trade balance (euro), Current account, Export, Import, Industrial prod’n, U.K. BRC shop price index, Industrial prod’n, Manufacturing prod’n, Halifax hse prices, Canada Building permits, BOC rate decision, Ivey PMI.

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