>> Yen Weaker on Dovish BoJ, Pound Stronger on Increasingly Hawkish BoE

Fundamental Headlines

- Jobs Data Simultaneous Release Jeopardized Under Curbs – Bloomberg

- Jordan Named SNB President Takes up Fight to Defend Franc – Bloomberg

- Argentine Move to Seize YPF Spoils Sinopec Deal – Reuters

- German Two-Year Debt Costs Hit Low – WSJ

- IMF Says Recovery Remains Fragile – WSJ

European Session Summary

While price action in the Asian session was clearly constructive and supportive of risk-positive sentiment, European traders brought a different attitude to work on Wednesday and the progress made by higher yielding currencies and risk-correlated assets was soon wiped out. The biggest moves come from the British Pound and the Japanese Yen, which, like the Canadian Dollar, have seen some indications of significant policy moves in the coming months from their respective central banks.

In terms of the Japanese Yen, it was the weakest major currency midway through the Asian session by a wide margin – the USDJPY had climbed by at least 0.60 percent – as Asian market participants seemingly rejoiced and chased the outstanding rally by the S&P 500 on Tuesday (its best in one month). The desire to trade in the low yielding currency for higher yielding assets was further supported after the Bank of Japan suggested that more easing may be necessary, even as the global economy shows signs of progress.

BoJ Deputy Governor Kiyohiko Nishimura’s comments that the BoJ is “committed to implementing additional easing measures, if deemed necessary” support recent technical moves by the USDJPY, which are starting to suggest that the USDJPY correction is finished and we’re set for the next major leg higher. If the BoJ is planning on implementing additional easing – seemingly ready to intervene at a moment’s notice – the Japanese Yen will weaken under the threat of this verbal intervention.

Like the Yen, the British Pound has been tossed around by market participants struggling to discern the direction of the Bank of England’s monetary policy. However, unlike the Yen which remains under pressure given the BoJ’s dovish stance, the Pound found significant support earlier in the day after the Bank of England minutes showed that Monetary Policy Committee member Adam Posen abandoned his stance for more easing. If the BoE is going to withdraw stimulus measures, or at least at the minimum attempt to communicate its desire to normalize monetary policy, the British Pound stands to gain substantially over the coming weeks.

Taking a look at credit, there is little rhyme or reason in the breakdown of how European sovereign debt has performed; Spanish debt is among the top performers while Italian and Portuguese debt have been the leading decliners. We now look to the 10-year Spanish bond auction tomorrow to see how confident market participants are in the Spanish government’s reforms.

GBPUSD 5-min Chart: April 18, 2012

 

Charts Created using Marketscope – Prepared by Christopher Vecchio

Overall, the British Pound was the best performing major currency after the BoE minutes, gaining 0.32 percent against the US Dollar. All of the other majors fell against the US Dollar with the Japanese Yen and New Zealand Dollar leading the decliners, down 0.61 percent each. The Swiss Franc is also weaker, down 0.50 percent, after SNB President Thomas Jordan reaffirmed the SNB’s commitment to the EURCHF floor.

24-Hour Price Action

24-Hour Price Action

Key Levels: 12:55 GMT

 Key Levels: 12:55 GMT

 Thus far, on Wednesday, the Dow Jones FXCM Dollar Index (Ticker: USDOLLAR) is trading higher, at 9968.49 at the time this report was written, after opening at 9939.85. The index has traded mostly higher, with the high at 9971.80 and the low at 9936.81.

FOREX NEWS - Euro climbs vs dlr on Greek hopes, dovish Fed

* Media reports of progress in Greek debt talks boost euro
* Dollar struggles after dovish Fed fuels risk appetite
* Ultra low U.S. rates expected until late 2014
By Nia Williams
LONDON, Jan 26 (Reuters) - The euro hit a five-week high against a broadly weak dollar on Thursday on speculation of progress in Greek debt negotiations and after the U.S. Federal Reserve indicated interest rates would stay at ultra low levels for at least another two years.
Traders said the euro was boosted by media reports that Greece's private creditors are willing to improve their "final offer" of a 4 percent interest rate on new Greek bonds in order to clinch a deal in time to avert a messy default.
The new offer was reported by Greek media, without quoting any sources, and analysts said the euro was still vulnerable to any negative headlines on the talks that could prompt investors to buy back the safe haven greenback.
The single currency hit a session peak of $1.3175, its highest level since Dec. 21, and was last trading up 0.4 percent on the day at $1.3162. It had rallied from around $1.2980 before the Fed statement on Wednesday, with macro funds cited as heavy dollar sellers.
The euro also rose to a fresh one-month high of 102.16 yen , well above an 11-year low of 97.04 yen touched on Jan. 16.
"There's a story in a couple of Greek papers suggesting private creditors might make a lower offer and I think that has helped the euro in the last hour," said George Saravelos, G10 FX strategist at Deutsche Bank.
"But the focus is more on the broader low volatility environment and the fact the Fed was dovish. It would clearly be helpful if we had a result (on Greece) but focus is on the Fed. I think the dollar will stay under pressure for a few days."
Higher-yielding commodity currencies also outperformed as the prospect of continued easy U.S. monetary policy supported investor appetite to take on risk.
The Australian dollar hit a three-month high of US$1.0688, while the New Zealand dollar traded at US$0.8232, its highest level since Oct. 28.
Federal Reserve Chairman Ben Bernanke said the U.S. central bank might consider further monetary easing through bond purchases. Policymakers also pushed back the likely timing of an eventual interest rate hike until late 2014, 18 months later than previously suggested.
The dollar gave back some of its recent gains against the yen, slipping to 77.55 following its rise to a two-month high of 78.28 yen on trading platform EBS on Wednesday. Strong technical resistance was cited around 78.30 yen, with the 200-day moving average now at 78.33 yen.
The greenback also dropped versus the Swiss franc to 0.9163 francs on trading platform EBS, its lowest level since early December.
GREEK UNCERTAINTY
Risk appetite was further supported by Italy selling the top planned amount of 5 billion euros of zero-coupon and inflation-linked bonds. The auction saw sound demand ahead of a crucial sale of five- and 10-year paper on Monday.
Some analysts said although the dollar was likely remain soft against perceived riskier currencies, investors would be wary of pushing the euro too high given concerns about the region's debt crisis.
"The main surprise was they (the Federal Reserve) were unequivocally dovish in their statement which suggested they do not need data to deteriorate to justify easing monetary policy further," said Michael Sneyd, FX strategist at BNP Paribas.
"We think this risk rally will last a bit longer, particularly in the commodity currencies. Against the euro there is still the overhang that we do not have any resolution to a Greek PSI agreement, euro/dollar is probably going to top out."
With time slipping ahead of a March deadline when Greece faces major bond redemptions, the top negotiator for private creditors, Charles Dallara, returns to Athens on Thursday to resume talks with officials, both sides said.
While the single currency's climb has led many investors to cut back what had been significant short positions, some of these positions remain, leaving it open to short covering rallies despite concerns about Europe's debt situation.
Still, many analysts said the overall outlook for the euro was shaky. Morgan Stanley strategists said in a note that any corrective rebound into the $1.3230 area in coming days should be used as an opportunity to re-establish bearish strategies.

FOREX NEWS - Euro climbs vs dlr on Greek hopes, dovish Fed

* Media reports of progress in Greek debt talks boost euro

* Dollar struggles after dovish Fed fuels risk appetite

* Ultra low U.S. rates expected until late 2014

By Nia Williams

LONDON, Jan 26 (Reuters) - The euro hit a five-week high against a broadly weak dollar on Thursday on speculation of progress in Greek debt negotiations and after the U.S. Federal Reserve indicated interest rates would stay at ultra low levels for at least another two years.

Traders said the euro was boosted by media reports that Greece's private creditors are willing to improve their "final offer" of a 4 percent interest rate on new Greek bonds in order to clinch a deal in time to avert a messy default.

The new offer was reported by Greek media, without quoting any sources, and analysts said the euro was still vulnerable to any negative headlines on the talks that could prompt investors to buy back the safe haven greenback.

The single currency hit a session peak of $1.3175, its highest level since Dec. 21, and was last trading up 0.4 percent on the day at $1.3162. It had rallied from around $1.2980 before the Fed statement on Wednesday, with macro funds cited as heavy dollar sellers.

The euro also rose to a fresh one-month high of 102.16 yen , well above an 11-year low of 97.04 yen touched on Jan. 16.

"There's a story in a couple of Greek papers suggesting private creditors might make a lower offer and I think that has helped the euro in the last hour," said George Saravelos, G10 FX strategist at Deutsche Bank.

"But the focus is more on the broader low volatility environment and the fact the Fed was dovish. It would clearly be helpful if we had a result (on Greece) but focus is on the Fed. I think the dollar will stay under pressure for a few days."

Higher-yielding commodity currencies also outperformed as the prospect of continued easy U.S. monetary policy supported investor appetite to take on risk.

The Australian dollar hit a three-month high of US$1.0688, while the New Zealand dollar traded at US$0.8232, its highest level since Oct. 28.

Federal Reserve Chairman Ben Bernanke said the U.S. central bank might consider further monetary easing through bond purchases. Policymakers also pushed back the likely timing of an eventual interest rate hike until late 2014, 18 months later than previously suggested.

The dollar gave back some of its recent gains against the yen, slipping to 77.55 following its rise to a two-month high of 78.28 yen on trading platform EBS on Wednesday. Strong technical resistance was cited around 78.30 yen, with the 200-day moving average now at 78.33 yen.

The greenback also dropped versus the Swiss franc to 0.9163 francs on trading platform EBS, its lowest level since early December.

GREEK UNCERTAINTY

Risk appetite was further supported by Italy selling the top planned amount of 5 billion euros of zero-coupon and inflation-linked bonds. The auction saw sound demand ahead of a crucial sale of five- and 10-year paper on Monday.

Some analysts said although the dollar was likely remain soft against perceived riskier currencies, investors would be wary of pushing the euro too high given concerns about the region's debt crisis.

"The main surprise was they (the Federal Reserve) were unequivocally dovish in their statement which suggested they do not need data to deteriorate to justify easing monetary policy further," said Michael Sneyd, FX strategist at BNP Paribas.

"We think this risk rally will last a bit longer, particularly in the commodity currencies. Against the euro there is still the overhang that we do not have any resolution to a Greek PSI agreement, euro/dollar is probably going to top out."

With time slipping ahead of a March deadline when Greece faces major bond redemptions, the top negotiator for private creditors, Charles Dallara, returns to Athens on Thursday to resume talks with officials, both sides said.

While the single currency's climb has led many investors to cut back what had been significant short positions, some of these positions remain, leaving it open to short covering rallies despite concerns about Europe's debt situation.

Still, many analysts said the overall outlook for the euro was shaky. Morgan Stanley strategists said in a note that any corrective rebound into the $1.3230 area in coming days should be used as an opportunity to re-establish bearish strategies.

© Thomson Reuters 2011. All rights reserved

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