Forex Market Reports from Investment-solutions.org

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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 specifics on support for Greece kept the euro depressed on a day when other risk-sensitive currencies, such as the Australian dollar, rallied strongly.

*The EU statement takes the worst-case scenario off the table for Greece, but also leaves plenty of room for anxiety in markets, and this will surely keep the euro depressed.

At a news conference Thursday, European Council President Herman Van Rompuy said euro-zone countries have pledged to support Greece through its debt crisis, but don't need to provide financial support right now. EU solidarity for Greece was not necessary today.

Markets were looking for more specifics on aid than EU leaders were willing to provide Thursday, and the euro suffered a sustained decline against the dollar as a result.

A backstop--as opposed to an outright bailout--might stabilize the euro for a short period of time, but sovereign debt problems and lack of growth prospects are likely to continue to dog the common currency.

The statement indicates EU officials won't let Greece fall off the map, but the euro will remain under pressure as sovereign debt issues in Portugal and Spain are waiting in the wings.

The dollar's strength against the euro was isolated, however, and the greenback declined against several other currencies, notably the Australian, New Zealand and Canadian dollars, after robust Australian job data helped underpin confidence in the global recovery.

Meanwhile, the currency market showed little reaction to news that U.S. initial claims for jobless benefits fell 43,000 to a seasonally adjusted 440,000 in the week ended Feb. 6.

 

Sterling short positions should start rising now.

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.

 

CURRENCY TRADING SUMMARY – 16th February (00:30GMT)

U.S. Dollar Trading (USD) was little changed in a quiet day of trading keeping to tight ranges against most currencies. US was on Holiday for President's Day and China was also away for the New Year celebrations. Looking ahead, December Long term TIC flows forecast at 50bn vs. 126bn previously. Also released, NAHB Housing Market Index forecast 16 vs. 15.

The Euro (EUR) the market is focusing on the EU finance Ministers meeting for more details on Greece support. The EUR/USD pivoted the 1.3600 for most of the day but was very quiet. Overall the EUR/USD traded with a low of 1.3578 and a high of 1.3636 before closing at 1.3600. Looking ahead, EU Finance Ministers Meeting Statement expected. Also released, February German ZEW survey forecast at 42.5 vs. 47.2 previously.

The Japanese Yen (JPY) traded in a very tight range on the USD/JPY around the Y90 level but is starting to build support below the key level. Supporting risk in the Asian session was better than expected Q4 GDP at 1.1% vs. 0.9% forecast Q/Q. Overall the USDJPY traded with a low of 89.90 and a high of 90.25 before closing the day around 90.05 in the New York session. Looking ahead, Chinese holidays continue.

The Sterling (GBP) had the widest trading range of the majors with support in the lower 1.5600 area tested before resistance above 1.5700 later in Europe. GBP/JPY is building support below Y141 but is still contained by resistance at Y141.50. Overall the GBP/USD traded with a low of 1.5610 and a high of 1.5723 before closing the day at 1.5665 in the New York session.

The Australian Dollar (AUD) found support on dips from a strong performance in Gold overnight and positive stocks in Europe. Resistance above 0.8900 is containing for now whilst the market waits for speeches from RBA Stevens and Debelle later this week. Overall the AUD/USD traded with a low of 0.8846 and a high of 0.8912 before closing the US session at 0.8895. Looking ahead, February RBA meeting minutes released.

Oil & Gold (XAU) was a solid performer testing and closing above the key $1100 level. Overall trading with a low of USD$1091 and high of USD$1103 before ending the New York session at USD$1101 an ounce. Oil was little changed with the US away. Crude Oil was down -$0.13 ending the New York session at $74.00.

 

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]

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