Yen to Extend Gains as US Data Underpins QE3 Reduction Bets

DailyFX

The Japanese Yen looks likely to extend as supportive US economic data underpins bets on near-term reduction in Fed stimulus, driving risk aversion.

Talking Points

  • Yen Soars as Asian Stocks Plummet on QE3 Reduction Bets, China PMI Miss
  • Eurozone PMIs Boost Euro But Fail to Turn the Tide of Broad Risk Aversion
  • Improved US Home Sales, Jobless Claims Data May Fuel Risk-Off Momentum

The Japanese Yen soared in overnight trade, adding as much as 2.1 percent on average against its leading counterparts, as risk aversion gripped Asian stock exchanges and prompted an unwinding of carry trades funded in the perennially low-yielding currency. The MSCI Asia Pacific regional benchmark index slid 3.6 percent in a move the newswires chalked up to hints of near-term QE3 reduction from Fed Chairman Ben Bernanke and a disappointing Chinese Manufacturing PMI report. Figures from HSBC suggested factory-sector activity unexpectedly contracted for the first time in seven months in the world’s second-largest economy.

Looking ahead, a nominally supportive set of Eurozone PMI figures seems to be doing little to underpin risk appetite in early European trade. The data showed manufacturing- and service-sector activity contracted at a slower pace than economists expected, although the overall trend still firmly points to continued recession in the second quarter. The Euro advanced on the results but S&P 500 index futures continue to trade sharply lower, hinting the dour mood seen in Asia is likely to carry forward as Wall Street comes online. Updated first-quarterUK GDP numbers printed in line with earlier estimates and likewise offer little that can meaningfully derail established momentum.

On balance, this points to continued Yen strength ahead. US New Home Sales and weekly Jobless Claims data are on tap ahead, with improvements expected on both fronts. That is likely to reinforce the idea that the Fed may taper asset purchases over the next several FOMC meetings, which ought to feed into continued risk aversion. For the US Dollar, the most profound response to these developments is likely to be reflected as continued USDJPY weakness.

Asia Session:

GMT

CCY

EVENT

ACT

EXP

PREV

1:00

AUD

Consumer Inflation Expectation (MAY)

2.3%

-

2.2%

1:45

CNY

HSBC Flash Manufacturing PMI (MAY)

49.6

50.4

50.4

5:00

JPY

BOJ Monthly Economic Report (MAY)

-

-

-

Euro Session:

GMT

CCY

EVENT

EXP/ACT

PREV

IMPACT

7:00

EUR

French PMI Services (MAY P)

44.3 (A)

44.3

Low

7:00

EUR

French PMI Manufacturing (MAY P)

45.5 (A)

44.4

Low

7:30

EUR

German PMI Manufacturing (MAY A)

49.0 (A)

48.1

Medium

7:30

EUR

German PMI Services (MAY A)

49.8 (A)

49.6

Medium

8:00

EUR

Euro-Zone PMI Manufacturing (MAY A)

47.8 (A)

46.7

Medium

8:00

EUR

Euro-Zone PMI Services (MAY A)

47.5 (A)

47.0

Medium

8:00

EUR

Euro-Zone PMI Composite (MAY A)

47.7 (A)

46.9

Medium

8:30

GBP

Gross Domestic Product (QoQ) (1Q P)

0.3% (A)

0.3%

High

8:30

GBP

Gross Domestic Product (YoY) (1Q P)

0.6% (A)

0.6%

High

8:30

GBP

Private Consumption (1Q P)

0.1% (A)

0.4%

Low

8:30

GBP

Government Spending (1Q P)

0.0% (A)

0.6%

Low

8:30

GBP

Gross Fixed Capital Formation (1Q P)

-0.8% (A)

-0.2%

Low

8:30

GBP

Imports (1Q P)

-0.5% (A)

-1.0%

Low

8:30

GBP

Exports (1Q P)

-0.8% (A)

-1.6%

Low

8:30

GBP

Total Business Investment (QoQ) (1Q P)

-0.4% (A)

-0.8%

Low

8:30

GBP

Total Business Investment (YoY) (1Q P)

0.7% (A)

0.8%

Low

8:30

GBP

Index of Services (MoM) (MAR)

0.2% (A)

0.9%

Low

8:30

GBP

Index of Services (3M/3M) (MAR)

0.6% (A)

0.1%

Low

8:30

EUR

Spain to Sell 2016, 2018 and 2026 Bonds

-

-

Low

10:05

USD

Fed’s Bullard Speaks on Monetary Policy

-

-

Low

Critical Levels:

CCY

SUPPORT

RESISTANCE

EURUSD

1.2795

1.2959

GBPUSD

1.4989

1.5143

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya, e-mail ispivak@dailyfx.com. Follow Ilya on Twitter at @IlyaSpivak

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