Economic Insights
Yen resumes weakening direction on G7′s comments
Over the weekend, G7 finance chiefs and central bankers reaffirmed their February commitment to “not target exchange rates.” That statement seems to indicate that they will tolerate a weakening Yen for now, as they stepped up their focus on Japan’s recovery strategy.
According to economists surveyed by Bloomberg News, much of the data scheduled for release this week will show that the Euro area remained in recession for the first quarter of 2013, and that U.S. retail sales fell in April for a second consecutive month. This probably explains why the finance chiefs are accommodative of loose monetary policies.
Bank of Japan Governor Haruhiko Kuroda used the G7 talks to reiterate that his doubling of monthly bond purchases is aimed at meeting a 2% inflation target by 2015, and not at artificially helping exporters. While the Yen’s weakness aids local exporters such as Sony Corp., it risks undermining prospects of trade partners. Nations including Australia, New Zealand and Switzerland are also moving to counter climbing currencies.
NZD tumbles on Reserve Bank of New Zealand (RBNZ) intervention
New Zealand intervened in the currency market last week for the first time in five years to curb the Kiwi’s stubborn rise. Reserve Bank of New Zealand Governor Graeme Wheeler noted that the Kiwi rose about 12% against the U.S. Dollar since the middle of last year and hurt the country’s exporters.
However, the tune for this week could be markedly different. I expect the U.S. Dollar to strengthen against several currencies. In fact, when markets opened on Monday morning, the USDJPY rose to 102.14, the highest level since October 2008. The Greenback is also at a one-month high against the Euro and a ten-month high against the Aussie Dollar.
A strong U.S. Dollar will hurt the country’s exporters but benefit foreign companies listed on the New York Stock Exchange. As an example, Avon, who generates over 85% of their total revenue outside the US, saw their earnings dip by 4% due to the Greenback’s strength. Toyota on the other hand, saw their Q1 earnings skyrocket. The car company made JPY314 billion, more than double last year’s JPY121 billion, and beat expectations for JPY296 billion. That whopping first-quarter figure is the company’s largest in more than five years.
Investment Insights
NZDUSD – resistance at 0.8340
On the 4-hourly chart, the NZDUSD moves in a strong downtrend, especially after the RBNZ intervened last week. I expect a weak number for retail sales tomorrow morning, which will cause the downtrend to continue.
An entry is taken when prices reach 0.8340, which is at the level of the EMA 12 (exponential moving average). A stop loss of 50 pips is placed just above the EMA 24, as I do not expect prices to rise above that level. We will have two targets on this trade, exiting the first position at 0.8290 and the second position at 0.8240.
Entry Price = 0.8340
Stop Loss = 0.8390
1st Profit = 0.8290
2nd Profit = 0.8240
Stop Loss = 0.8390
1st Profit = 0.8290
2nd Profit = 0.8240
Disclaimer The analysis we provide is based on the average estimate of price movements in one day. Does not guarantee what we deliver is actually a proper and correct. Everything that happens in the decisions you make on your trading transaction is to be Your responsibilities.
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