FOREX market reports from Investment Solutions
Japanese institutional investors nervous about the debt crisis in southern Europe could begin pulling out of their overseas investments, pushing up the Japanese yen in coming months, analysts say.
Each year, currency traders speculate that Japanese exporters will repatriate their foreign investment proceeds into yen to dress up their books ahead of the March 31 fiscal year-end.
While such major repatriation hasn't materialized in past years, some analysts say this year could be different.
For one thing, investors already are selling their overseas debt as worries about the European debt picture mount.
Japanese investors have increased their net holdings of foreign bonds by Y6 trillion a year in recent years. In January, however, Japanese institutional investors sold a net Y250 billion of foreign bonds, the first month of net sales since March 2009, according to flows data from the Ministry of Finance.
A breakdown by currency isn't yet available for January, but in December Japanese investors sold net Y1.1 trillion of euro-denominated bonds while buying net Y668 billion of dollar-denominated bonds. All told, Japanese investors net sold Y142.8 billion of foreign bonds in December, according to MOF.
Fueling concern is the outlook for Greek debt - some analysts warn Greece could default - and the debt of other southern European countries such as Portugal, Spain and Italy.
Downgrades to the ratings of any of these countries would likely prompt Japanese investors to sell off additional foreign bond holdings, Nomura Securities senior dealer Hiroshi Maeba said.
Many Japanese investors have been hanging on to their foreign bonds because they bought them when the yen was weaker, and selling now would entail a foreign exchange loss. But fear of losing money on the bonds themselves could spur investors to get out while they can.
Though the catalyst for such moves is in Europe, dollar-denominated assets could be sold as well if Japanese investor sentiment sours.
Aggressive selling of foreign bonds could push up the yen to important psychological points around Y85 to the dollar - it fell as low as Y84.82 on Nov. 27m, before turning around - and Y115 to the euro, a level it hasn't hit in a year, dealers in Tokyo said. That could prompt Japanese authorities to intervene in the market for the first time since March 2004 to stem the yen's rise.
To be sure, some analysts say there won't be a large-scale repatriation because investors such as life insurance firms manage their funds with an outlook of a decade or more. In addition, European Union officials recently have hinted that they'd step in to save Greece from defaulting.
Analysts should keep checking the MOF's weekly flow data and its correlation to yen moves against the dollar and euro, said Yuji Saito, director of Credit Agricole Cib's foreign exchange department. So far the data correlate: As Japanese investors became net sellers, the dollar had fallen to Y89.75 as of 0700 GMT Wednesday, down 4% from January's high of Y93.78, while the euro was at Y123.60, 9% below last month's high of Y134.39.
All told, Saito says, Japanese institutional investors' trading patterns will provide a good basis to forecast the direction of the yen.
EUR
The euro slumped against the dollar Wednesday as it remains unclear how the European Union will address the debt woes of Greece and other member nations that are fiscally stressed.
Pressure on the common currency increased after remarks by Federal Reserve Chairman Ben Bernanke on the likely path of credit tightening in the U.S. once the economy recovers.
Even if E.U. leaders come up with a rescue package for Greece, questions remain, he said, including whether the support would also extend to other countries.
Blizzard conditions in New York and other parts of the Northeast kept many investors on the sidelines, with light trading volumes leading to volatile trading conditions... [Full Article]
The euro faltered broadly Thursday as a European Union statement of support for Greece failed to extinguish investor concern over the struggling country's stressed fiscal situation.
The common currency's slide in North American trading took it back to levels last seen Monday, erasing almost all of the gains it made this week on optimism that a solution for Greece's budgetary problems was in the works.
An afternoon rally in U.S. stocks and commodities helped the euro rebound from an earlier drop to near eight-month lows, but investors yearning for...[Full Article]
Up until this week, there were still lingering hopes that the U.K. economy could yet pull ahead and that expectations of a hike in U.K. interest rates would provide support for the currency.
However, the pound's prospects have suffered a double whammy in the last few days.
First, the Bank of England's latest Inflation Report has effectively erased hopes of a rate rise before the end of the year.
As the central bank itself admitted: "The strength of the recovery is highly uncertain."
And second, the latest opinion polls show that the Conservatives' lead is still shrinking and that the risks of hung parliament are rapidly rising.
The euro will continue to surrender ground to the dollar in the coming week, as lingering concerns over fiscally stressed Greece contrast with a U.S. economy that is chugging forward.
Investors will pay close attention to whether E.U. member nations--euro-zone countries in particular--develop more solid plans to address Greek finances after this week's E.U. statement of support, with few details, failed to undergird a shaky euro.
Several Federal Reserve speakers will also take center stage week, with investors listening closely for any clues on when the U.S. might increase the ultra-low interest rates that weigh on the greenback. [FULL ARTICLE]
U.S. Dollar Trading (USD) weakened as risk appetite picked up on strong stocks and commodities. Helping sentiment was the large jump in the NY FED Empire State index to 24 vs. 16. Also strong, NAHB Fed Housing Market index rising to 17 vs. 15 the first rise since September last year. In US stocks DJIA +169 points closing at 10268, S&P +19 points closing at 1094 and NASDAQ +30 points closing at 2214 Looking ahead, January Housing Starts forecast at 0.58mln vs. 0.557mln previously. January Industrial output forecast at 0.7% vs. 0.6%. Also Released, FOMC minutes from Jan 27 meeting.
The Euro (EUR) enjoyed a solid short squeeze as the market experienced a bout of 'Greece fatigue' and focus switched to the improving investor risk appetite. EUR/JPY was especially will bid breaking above resistance at Y123 to close above Y124. The German ZEW survey fell to 45.1 vs. 47.2 previously but was much better than the 42.5 forecast. Overall the EUR/USD traded with a low of 1.3587 and a high of 1.3782 before closing at 1.3770.[FULL ARTICLE]
FOREX Signals from Investment-solutions.org
New signals for the week starting 15th Feb.
EUR/JPY
Buy@ 123.10 SL122.32 TP123.88
Sell @ 122.32 SL123.10 TP121.54
GBP/JPY
Buy@ 141.56 SL140.62 TP142.50
Sell@ 140.62 SL141.56 TP139.68
CAD/JPY
Buy@ 86.02 SL85.34 TP86.70
Sell@ 85.34 SL86.02 TP84.66
AUD/JPY
Buy@80.23 SL79.56 TP80.90
Sell@ 79.56 SL80.23 TP78.89
USD/JPY
Buy@ 90.38 SL89.76 TP91.00
Sell@89.76 SL90.38 TP89.14
CHF/JPY
Buy@ 84.01 SL83.36 TP84.66
Sell@ 83.36 SL84.01 TP82.71
Daily Indian Rupee Reviews
The Indian rupee retreated from two-week highs on Wednesday after the dollar climbed against some majors, but firm domestic equities kept the undertone bullish.
The partially convertible rupee INR=IN ended at 46.11/12 per dollar after hitting 45.95 early, its highest since Feb. 3, but still 0.2 percent stronger than 46.21/22 at close on Tuesday.
"The euro started coming off against the dollar in late trade which weighed on the rupee. There is strong technical resistance at 1.3800 for the euro," a senior trader with a private sector bank said.
"The market was mainly looking at local and regional share market moves today," he added.
Shares .BSESN climbed for a second day rising 1.25 percent to their highest close in two weeks, as foreign appetite for risk revived on the back of higher world equities.
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JPY
The yen fell against high-yielding units in Asia Tuesday as an upturn in Chinese stocks helped reduce risk aversion, prompting investors to buy back riskier currencies such as the euro.
In tandem with the euro, the Australian dollar, the Swiss franc and the pound also advanced against the yen.
But dealers say the Japanese unit could make a turnaround in the near term amid lingering sovereign debt worries in euro-zone nations.
Although the European Union is slated to hold a summit on Thursday, traders expect the organization to fail to offer detailed plans on how to deal with the fiscal crisis in Greece, Spain and Portugal.
Elsewhere, the greenback rose against the yen after Federal Reserve Bank of St. Louis President James Bullard said earlier in the day the discount rate the Fed charges banks for emergency loans could go up fairly soon as part of its plans to end its liquidity programs.
The remarks from the Fed official were translated as a sign that the U.S. central bank could lift its policy rate anytime soon, pushing the dollar higher versus the yen.
Still, the U.S. unit is unlikely to keep rising as the economic outlook remains uncertain and stocks are weak. Market participants are focused on comments from Federal Reserve Chairman Ben Bernanke, who is set to appear before House lawmakers Wednesday.
EUR
The euro rallied against the dollar and the yen Tuesday, breaking a four-day losing streak, on the belief that European Union members are working towards helping fiscally embattled Greece.
The British pound, the Canadian and Australian dollars and other risk-sensitive currencies also rose as the expectation Greece will get assistance dealing with its fiscal dilemma helped calm investors' broad worries about risk.
Europe's common currency ceded some gains in afternoon trading after the German government said no decision has been made on aid for Greece.
German Finance Ministry Spokesman Michael Offer said attendees at an informal summit held by the European Union in Brussels Thursday would work on further steps to help Greece shore up its public finances and restore calm in financial markets.
Separately, a German government source said Germany is considering what it could contribute to an EU contingency plan to provide financial backing for Greece.
News reports throughout the day stirred speculation the EU was preparing a package to back up Greece after the country racked up budget deficits four times the EU's 3% limit. The Greek budget shortfalls had not only hurt the euro but threatened to drag down the government bonds of other financially challenged euro-zone members such as Portugal and Spain.
Whether or not there ultimately proves to be substance behind the talk, the bailout chatter served as a trigger for speculative investors to take profits on bets against the single currency.
The euro's initial advance began during Asian trading hours on talk that European Central Bank President Jean-Claude Trichet was leaving a central bankers gathering in Sydney earlier than planned to attend the EU meeting in Brussels. However, a spokeswoman for the European Central Bank clarified that Trichet had a long-standing commitment to attend the meeting.