Yen Accelerates Higher as Risk Aversion Intensifies

Market overviews

Yen and Swiss Franc dominates the markets for the day, as selloff in stocks spread from Asia to Europe, to US. Risk aversion intensified with DOW down over -800 pts in initial trading, while 10-year yield breaks1.2 handle. Canadian Dollar is the worst performing one, as WTI crude oil breaks below 70 handle. However, Australian and New Zealand Dollar are not too far away. The greenback is mixed for the moment, a touch weaker than Euro, but firmer against Sterling. We’d now see if US indices could bend upward before close. Or, the selloff would spillover back to Asian markets tomorrow.

Technically, one thing to note is USD/JPY’s break of 109.52 support, that resume the fall from 111.65. We’d not firstly see if USD/CHF would break through corresponding support at 0.9116 too. Additionally, we’d see if that would also result in EUR/CHF’s break of 1.0802 support. Or, EUR/USD could indeed ride on Dollar’s selloff and rebound through 1.1880 resistance. The interactions would be interesting.

In US markets, at the time of writing, DOW is down -2.27%, S&P 500 is down -1.83%. NADSAQ is down -1.61%. 10-year yield is down -0.0009 at 1.194. In Europe, FTSE is down -2.76%. DAX is down -2.97%. CAC is down -3.00%. Germany 10-year yield is down -0.048 at -0.399. Earlier in Asia, Nikkei dropped -1.25%. Hong Kong HSI dropped -1.84%. China Shanghai SSE dropped -0.01%. Singapore Strait Times dropped -1.30%. Japan 10-year JGB yield rose 0.0012 to 0.019.

BoE Haskel: Risk management considerations lean against pre emptive tightening

BoE policymaker Jonathan Haskel said in a speech, “in the immediate term, the risk of a pre emptive monetary tightening curtailing the recovery continues to outweigh the risk of a temporary period of above target inflation. For the foreseeable future, in my view, tight policy isn’t the right policy.”

He also noted “two headwinds” oer the coming months, the “highly transmissible Delta variant” and a “tightening of the fiscal stance”. “Against this backdrop, risk management considerations lean against a pre emptive tightening of monetary policy until we can be more sure the economy is recovering in a manner consistent with the sustained achievement of the inflation target,” he said.

Bundesbank: German economic rose strongly in Q2, to be even stronger in Q3

Bundesbank said in the latest monthly report, “the German economic output increased strongly again in the second quarter of 2021.”

“Provided that there are no significant setbacks with a view to the pandemic and the supply bottlenecks in the industry at least gradually decrease, the overall economic expansion rate is likely to be even stronger in the summer quarter,” it added.

Real GDP could finally reach pre-pandemic level again in Q3.

A look at EUR/CAD and AUD/CAD as Canadian Dollar dives

Canadian Dollar tumbles broadly today as dragged by risk off sentiments, as well as the fall in oil price. WTI is pressing 70 handle after OPEC+ agreed over the weekend to boost production by 400k barrels a day, reversing some of the pandemic production cuts.

EUR/CAD surges to as high as 1.5041 today as rebound from 1.4580 resumes and accelerates. Current development now suggest that whole pattern from 1.5991 has completed at 1.4580 already, on bullish convergence condition in daily MACD. Next focus is 38.2% retracement of 1.5991 to 1.4580 at 1.5119. Sustained break there will pave the way to 61.8% retracement at 1.5452 and above.

As for AUD/CAD, focus is now on 0.9394 resistance. Firm break there and sustained trading above 55 day EMA confirm short term bottoming at 0.9245. That would also argue that correction form 0.9991 has completed after drawing support from 0.9247 key support level. Stronger rise should then be seen to 38.2% retracement of 0.9991 to 0.9245 at 0.9530, and then 61.8% retracement at 0.9706.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 109.77; (P) 110.05; (R1) 110.38; More…

USD/JPY’s fall from 111.65 resumes by breaking through 109.52 support and reaches as low as 109.05 so far. Intraday bias is back on the downside. Current development suggests that such decline is at least correcting the rise from 102..58. Deeper fall would be seen to 38.2% retracement of 102.58 to 111.65 at 108.18. On the upside, break of 110.33 resistance is needed to indicate short term topping. Otherwise, outlook will stay bearish.

In the bigger picture, medium term outlook is staying neutral with 111.71 resistance intact. Sustained trading below 55 day EMA would argue that the pattern from 101.18 is starting another falling leg, that could head back to 102.58 support and below. For now, outlook won’t turn bullish as long as 111.71 resistance holds, even in case of strong rebound.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
23:01 GBP Rightmove House Price Index M/M Jul 0.70% 0.80%
14:00 USD NAHB Housing Market Index Jul 80 82 81