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Main » Articles » Currency trading

Yen Declines as Stocks Boost Risk Appetite, BOJ Signals Action
The yen fell from a six-week high against the euro as stocks rose and a Japanese government official fanned speculation the central bank may seek to weaken the currency after it gained 4 percent in five days.

The yen also retreated from a four-month high against the dollar as the MSCI World Index snapped a five-day decline and Reuters cited Chief Cabinet Secretary Takeo Kawamura as saying excessive currency movements are undesirable. The pound rose by the most in almost three weeks against the dollar after the Bank of England said it will keep its bond-buying program unchanged. Indonesia’s rupiah rose as exit polls pointed to a landslide victory for President Susilo Bambang Yudhoyono.

“Japanese officials are concerned about the speed of the yen appreciation,” said Neil Jones, head of European hedge-fund sales at Mizuho Corporate Bank Ltd. in London. “If it goes too much too quickly, there is a danger of intervention.”

The yen weakened to 129.69 per euro as of 7:30 a.m. in New York, from 128.95 yesterday, when it strengthened to 127.02, the strongest level since May 18. It was at 92.91 per dollar, from 92.88 yesterday, when it reached 91.81, the highest level since Feb. 17. The euro advanced to $1.3955, from $1.3884.

The yen strengthened as much as 3.9 percent versus the euro yesterday, the most since October, and 3.3 percent against the dollar as concern that the recovery from the global recession will be delayed prompted investors to seek refuge in the currency. The yen typically rises during times of financial turmoil because Japan’s trade surplus reduces the nation’s reliance on overseas lenders.

The yen may strengthen to trade below 125 per euro and 90 against the dollar through August, and then decline by year-end, Jones said.

Technical Indicator

The dollar’s 14-day stochastic oscillator against the yen was at 19.9 yesterday, below the 20 level that signals it may have fallen too quickly and is poised to rise. In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a currency.

“The yen’s surge was very fast, so a correction of this is under way,” said Nobuaki Kubo, vice president of foreign exchange in Tokyo at BBH Investment Services Inc., a unit of New York-based Brown Brothers Harriman & Co.

Japan’s government is closely watching market moves, Kawamura said at a news conference today, according to Reuters.

Alcoa, China

The MSCI World Index rose 0.4 percent and every stock market in Europe advanced after China said passenger-vehicle sales rose 48 percent in June, the biggest jump since February 2006, and Alcoa Inc. kicked off the second-quarter earnings season by reporting results that beat analysts’ estimates. Standard & Poor’s 500 Index futures climbed 0.7 percent.

“Corporate earnings can surprise on the upside and that will take the shine off the yen and support stock markets,” Jones said.

The world economy will expand 2.5 percent in 2010, the International Monetary Fund said yesterday, revising its forecast from an April projection of 1.9 percent growth.

The pound climbed as much as 1.2 percent, the most since June 19, after the Bank of England said it will keep its asset- purchase plan at 125 billion pounds. The British currency traded as high as $1.6266, from $1.6072 yesterday. It strengthened to 85.96 pence per euro, from 86.39 pence. The British Chambers of Commerce recommended two days ago that policymakers expand the program to revive the economy.

High-Yielders

“There was always a risk sterling would get a spike if they didn’t do anything and that’s what we’ve got,” said Jeremy Stretch, a senior strategist at Rabobank International in London. “Sterling might get a short-term boost, but I wouldn’t want to overplay it.”

Investors bought higher-yielding currencies as China’s passenger-vehicle sales data added to evidence government stimulus spending is spurring a revival in the world’s third- largest economy. China is “a positive force” that will help drive growth, billionaire investor George Soros said yesterday.

The recovery in Asian markets “suggests that Japanese importers are selling the yen” to take advantage of yesterday’s gains, analysts led by Ulrich Leuchtmann, head of foreign- exchange research in Frankfurt at Commerzbank AG, wrote in a report today. “We still consider it unlikely that yesterday’s appreciation constitutes a sustainable” advance for Japan’s currency.

‘Best-Case Scenario’

Indonesia’s rupiah rose as President Yudhoyono swept toward a second five-year term, paving the way for more pro-growth policies. Yudhoyono led rivals with 61 percent of votes, according to a preliminary count by the Indonesia Survey Institute. The $433 billion economy may expand as much as 4 percent this year, the fastest pace in Asia after India and China, the IMF estimates.

“It was the best-case scenario,” said Tim Condon, Singapore-based head of Asia research at ING Groep NV. “The rupiah will rally to 10,000 to the dollar. I see any dollar strength right now from global risk aversion as a chance to sell dollars and buy rupiah.”

The rupiah rose 1.4 percent to 10,148 per dollar, extending its gains to 11.6 percent in the past three months.

South Korea’s won declined for a fourth day against the dollar after the central bank left its benchmark rate unchanged today at a record low.

The Bank of Korea held the seven-day repurchase rate at 2 percent, as expected by all economists surveyed by Bloomberg News. The bank slashed rates by 3.25 percentage points between October and February, the steepest cuts since it began setting a policy rate a decade ago.

The won traded 0.2 percent lower at 1,278.95 per dollar, after declining to 1,282.25, the weakest since June 30.

Group of Eight

The yen strengthened earlier after Group of Eight leaders said yesterday the global economic recovery is too fragile to withdraw stimulus efforts, bolstering demand for the currency as a refuge from the slump.

U.S. President Barack Obama called for the door to remain open to more stimulus measures as a renewed stock-market drop stirred concern that $2 trillion spent worldwide so far hasn’t jolted consumers and businesses back to life.

Leaders from the G-8 and those from the Group of Five developing nations agreed to “refrain from competitive devaluations of our currencies,” according to a draft of a statement to be released in L’Aquila, Italy. They will “promote a stable and well-functioning international monetary system.”

To contact the reporters on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net

Category: Currency trading | Added by: forex-market (2009-07-09)
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