Article / 27 August 2013 at 7:01 GMT

JPY crosses teetering ahead of German Ifo survey

John J Hardy John J Hardy
Head of FX Strategy / Saxo Bank

The yen was cutting a swathe of strength against the major currencies overnight and EURJPY was perched at critical support just ahead of the biggest of the business sentiment surveys this morning — the German Ifo.

Japan’s consumer confidence pushed a bit higher again this month to match the high from earlier this year and thus since 2007. The weak US durable goods orders data and strong bond markets and weak equity markets were manna for the Japanese yen and it is interesting to note that we are seeing JPY strength this morning without the US dollar suffering excessively relative to other currencies. In the recent past, it seemed the USD had a hard time making any headway in general if the USDJPY cross was under threat.

EURJPY is faltering coming into the European session today, with the 131.00 area in focus this morning again — 131.04 was key resistance on the way up recently. A blast down through this level and hold into the close (a possibility on a weak Ifo survey today) could threaten the entire rally and swing the technical needle back to bearish. Already, the USDJPY chart is under threat and is already suggesting the JPY crosses are under siege until proven otherwise. Note that the Ichimoku cloud boundary will be climbing in the days ahead after a recent test, with bearish implications if it is broken.


Looking ahead
The noise of late is that things are generally on the up and up across Europe, and Citi’s index of economic surprises for Europe is up at its highest level since March of this year after climbing from an ugly trough in the May time frame. So the bigger surprise side for today’s Ifo survey would certainly be to the negative side.

Geopolitical tensions are rapidly escalating and are working against risk sentiment at the moment with the attention directed Syria’s way due from the US and John Kerry’s stark warning. This situation is a wild card for the moment, particularly after steeply worse relations between the US and Russia of late.

Italy is auctioning BTP’s of up to 12 years maturity at 0900 GMT — could be an interesting auction as Italy is the EU peripheral country receiving the most negative attention due to the political situation with Berlusconi.

A trio of US Treasury auctions this week kicks off today with the auction of 2-year notes today and the somewhat more interesting 5-year and 7-year auctions tomorrow and Thursday, respectively. Demand will be interesting to measure after the yield run-up of the last several weeks. The treasury rally is getting technically interesting soon, as the 2.75 percent yield area in the 10-year is nearing (benchmark is currently trading around 2.785 percent) and any significant rally in treasuries from here could mean that the high in yields is behind us for some time.

It feels like a high energy day, with risk in an ugly mood, JPY crosses heating up and the USD in a pivot zone in many places (pivoting higher against the commodity currencies and I wonder if EUR and GBP might follow, though JPY could pivot the other way depending on bond markets and equity confidence). So stay careful out there and the levels I mentioned yesterday are still in play, with most scenarios playing out as expected thus far

Economic Data Highlights

  • Norway Q3 Consumer Confidence out at 22.4 vs. 22.8 in Q2
  • Japan August Small Business Confidence out at 49.7 vs. 49.4 in July.

Upcoming Economic Calendar Highlights (all times GMT)

  • Sweden July Trade Balance (07:30)
  • Sweden July Household Lending (07:30)
  • Germany August Ifo Survey (08:00)
  • US Fed’s Williams to speak (10:50)
  • Eurozone ECB’s Coeure to speak (11:00)
  • US June S&P/CaseShiller Home Price Index (13:00)
  • US August Richmond Fed Manufacturing Index (14:00)
  • US August Conference Board Consumer Confidence (14:00)
  • Japan Bank of Japan’s Iwata to speak (05:00)



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