Forex Investment and Currency Trading

JPY strength is a notable feature of trade this morning; risk aversion is one reason cited for the JPY gains after Asian equities tumbled earlier today though lower US yields (reflecting risk aversion and a reining back of the recovery/inflation worries from earlier in June) are also at play here. Speculative accounts that had been nosing back into the “carry trade” are also liquidating positions as both AUD/JPY and NZD/JPY slide back under important support points. Sterling is the major under performer on the session so far, with the pound weighed down by disappointing UK housing data and GBP/JPY has also broken support in the low/mid 153 zone this morning and looks set to soften a little further.

JPY gains may be supported by continued signs of improvement in Japan’s external balances and the broader economy; today’s trade and current account surpluses were a little shy of expectations but the current account showed the largest black ink entry since October last year (Japan’s tertiary sector sentiment survey was the strongest since October 2007 though machine orders were disappointing).  JPY is expected to remain strong against the USD in the coming months and some suspect that the combination of low US market returns and (potentially) increased repatriation could make for a fairly rapid return to the 90 level for USD/JPY.

Elsewhere, Asian investors continue to support the EUR on dips; stronger German industrial production data helped sentiment in the short term though the recent interest to accumulate large downside strikes continues weigh on sentiment it seems. The draft G8/14 communiqué made no direct references to currency issues but did indicate a need to prepare to unwind stimulus “once recovery was assured”. Chinese President Hu departed from the discussions early to deal with the rioting in Xinjiang and that has doused speculation that the remainder of the meeting will focus too intently on the USD/reserve diversification issue; some do not, however, think this issue will go away and look for continuing diversification trade to limit the USD’s ability to strengthen in the medium term.

USDJPY

Two developments here
1. USDJPY closed below the short term head and shoulders neckline which targets 90.80 (this short term pattern is in green above)

2. That short term head and shoulders the right shoulder on the medium term head and shoulders
pattern. USDJPY has so far held the neckline at 94.08. A breach of this on a close bass would
suggest a more aggressive downside target of sub 87.