Expert Analysis of Today's Market

• The dollar was lower versus most key currencies on Friday but stronger against the yen. The weakening yen was the dominant feature of today’s FX market. Despite falling global equity markets, the yen hit new multiyear lows against the dollar, euro, aussie and kiwi as investors continued to sell the low-yielding yen in favor of higher returns.


• Suffering not only from institutional carry-trades, the yen is also pressured by Japanese households buying overseas assets to get better returns on their savings. Even after the Bank of Japan’s expected interest-rate increase in August to 0.75%, Japan’s interest rates will be much lower than rates abroad. Japanese retail investors will continue to internationalize their portfolios and are less sensitive to shifting risk appetite than institutional carry-trade investors as Japanese households need to diversify assets out of Japan as the population ages. The overbought USD/JPY, touching a 4-1/2 year high on Friday, is trading along the upper band of its upward sloping trading channel. The pair is likely to become more overbought before any meaningful reversal for the yen.

Financial and Economic News and Comments

US & Canada

• No US major economic releases today.

Europe

• Germany business confidence unexpectedly fell in June but current levels still pointed to robust activity, the German Ifo research institute reported. The Ifo business confidence index fell to 107.0 in June from 108.6 in May. The index for current conditions declined to 111.4 from 112.5 and the 6-month outlook deteriorated to 102.8 from 104.8.


• European industrial orders fell a less-than-expected 0.4% m/m in April, Eurostat reported. Still orders accelerated 12.2% y/y in April, compared with an 8.1% y/y increase in March.


• The Swiss franc advanced after Swiss National Bank Governor Jean-Pierre Roth said the outlook for the Swiss economy is favorable, increasing speculation the SNB may lift its benchmark interest rate before its next quarterly meeting.


• European Central Bank President Jean-Claude Trichet has defended the role of money analysis in setting interest rates, saying central banks including the US Federal Reserve ignore it at their peril.

Asia-Pacific

• Japanese finance companies will market more than ¥1.5 trillion ($12.1 billion) of foreign-currency investment trusts before the end of June, according to Bloomberg.


• China’s shares fell the most in almost three weeks on speculation the government will raise interest rates to tame a stock-market boom and cool the economy.

FX Strategy Update