Daily Report: Dollar Reversed, Yen Boosted by Falling Stocks

Market Overview | Written by ActionForex.com | Jul 08 08 07:21 GMT |

After the sharp reversal triggered by weakness in the equity markets, dollar regains some ground today but is still held in range against most currencies. The focus of the market now is on carry trades as seen in the broad based rally in the Japanese yen, in particular against Sterling and Aussie as Asia stocks follow US. There are renewed concern on the credit crisis after Lehman Brothers said yesterday Fannie Mae and Freddie Mac, the two largest U.S. mortgage financers, may have to raise $75 billion in capital.

Note that the picture is rather mixed for the moment as on the one hand, renewed weakness could be seen in the greenback in case of further stock market losses today. On the other hand, weakness in yen crosses provided added pressure to major currencies like Euro, Sterling and Aussie and in turn trigger selling in respective dollar pairs. Having said that, the safer bet is on more downside for commodity yen crosses.

In a document posted on Japan Foreign Ministry's website, G8 leaders expressed "strong concern" on elevated commodity prices, in particular oil and food. The rising costs of oil and food is posing risks to the global economy and the called on energy exporting nations to invest more in production. The three days annual summit is still in progress in Japan.

The Aussie was additionally pressured after data showed business conditions deteriorated sharply in June. The National Australia Bank's index of overall business conditions shed 7 points in June to 0, the worst reading since late 2001. Business confidence dropped further from -4 to -9.

UK DCLG house price index, US pending homes sales and whole sales inventories will be released later today. But focus should mainly be on speeches from Fed Bernanke and Lacker as well as additional communications from G8, in addition to development in the stock markets.

GBP/JPY Daily Outlook

Daily Pivots: (S1) 211.03; (P) 211.73; (R1) 212.48; More

GBP/JPY's sharp fall today and break of our the congested consolidation pattern suggests that corrective rise from 209.39 should have completed. Intraday bias is now mildly on the downside. As mentioned before, failure to sustain above 213.48 key medium term resistance argues that at least a short term top is possibly in place. Below 209.39 will indicate that such decline from 213.91 has resumed for 203.96 support first. On the upside, above 212.32 will encourage a retest of 231.91 high. Nevertheless, firm break above 213.91 is needed to revive short term bullishness. Otherwise, risk remains mildly on the downside.

In the bigger picture, a medium term bottom is in place at 192.60. At this moment, there is no confirmation of completion of the rebound from there yet. Though, break of the mentioned short term trend line support will be the first signal that rally from 192.60 has finished. Further break of 199.78 support confirm such case, and focus will be back to 192.60 low. On the upside, above 213.91 will confirm the such rebound is still in progress towards 221.25 medium term support turned resistance.

Economic Indicators Update

GMT	Ccy	Events	Actual	Consensus	Previous	Revised
1:30	AUD	Australia NAB business confidence Jun	-9	N/A	-4
5:00	JPY	Japan Economic watch DI Jun	29.5	31	32.1
8:30	GBP	U.K. DCLG house prices Y/Y May		3.30%	4.90%
12:00	USD	Fed's Bernanke Speaks
14:00	USD	U.S. Pending home sales M/M May		-2.50%	6.30%
14:00	USD	U.S. Wholesale inventories May		0.70%	1.30%
16:30	USD	Fed's Lacker Speaks