Yen Weakens On Nikkei Rebound And Intervention Talk, Euro And Pound Gain

Daily Forex Fundamentals | Written by DailyFX | Oct 28 08 10:08 GMT |

Talking Points

* Japanese Yen: Weakens As Risk Appetite Returns
* Pound: Pound Weakness As Brown Hints at Further cuts
* Euro: French Consumer Confidence Falls
* US Dollar: Consumer Confidence On Tap

Yen Weakens on Nikkei Rebound and Intervention Talk, Euro and Pound Gain

The Yen would weaken as risk appetite increased after the Nikkei Index bounced from support at 7,000. It was the first time in 26 years that the index had reached that low and the increase in risk appetite would send the USDJPY gaining over 300 points and reaching as high as 96.215. Continued talk of intervention from the BoJ following the G-7 statement that the volatility surrounding the currency was a concern led to the first losses versus the dollar and Euro in a week. Despite the rhetoric, the chances of action from the MoF may be slim as the impact may be minimal at current market conditions. Continued risk appetite may lead to the Yen trading heavy throughout the week.

The Euro would benefit from the increased risk appetite rising to as high as 1.2590 before finding resistance. The move higher was despite more affirmation from ECB President Trichet that another rate cut is likely at the central bank's November 6th meeting. The MPC leader would acknowledge that price pressures have abated enough to allow the central bank to put aside its price stability mandate and focus on growth. Although talk of a coordinated rate cut has been talked about it appears that policy makers will continue easing according to their scheduled policy meetings. Meanwhile, Germany and France released conflicting consumer sentiment reports, as Germans became more optimistic on declining oil prices as the French concerns grew over the credit crisis. The German consumer confidence reading improved to 1.9 from 1.8 as the French printed a decline to -47 from -44. The Euro may continue to gain on increasing risk appetite and an expected rate cut from the Fed. However, as we get closer to the ECB policy meeting we may see the Euro weaken as the central bank may signal that a prolonged easing policy is forthcoming following their expected 25 bops rate cut..

The Pound would also gain over 300 points on increased risk appetite before finding resistance at 1.5750. The Pound wouldn't hold onto the gains for long as concerns over the financial system and declining interest rate expectations would send the GBPUSD back down to the 1.5500 price level before finding support. A report from the BoE where it put potential losses over the next five years from the U.K.'s five largest banks at $130 billion added to the bearish sentiment. The report would go on to call for a complete overhaul of the regulation safeguards used to mitigate risks. The central bank is expected to cut rates by 50 bps at their November 6th meeting which could be a weighing factor in the Pound.

The U.S. economic calendar will have a number of second tier indicators which in total will give us a snap shot of the economy. Consumer confidence may have the biggest impact on price action as sentiment is expected to have plummeted to 52.8 from 59.8 as the credit crisis weighs ion Americans. Declining optimism from consumers will lead to lower consumption and the fulfillment of expectations that the upcoming Holiday season will be one of the worst ever. The S&P/Case Schiller home price report and the Richmond Fed manufacturing report are expected to show further weakness in housing and industrial activity which could also be weighing factors on the dollar. However, the biggest influence on the dollar today could be increased risk appetite. If U.S. equity markets follow the Asian and European session then we may see dollar weakness continue through tomorrow's FOMC rate decision.

DailyFX

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