The Japanese yen gained significant ground against its major trading counterparts on Thursday, recording its biggest move vs. the dollar in more than a year in the face of the surprise deterioration in the Philadelphia Fed manufacturing index to -5.8 in May from 8.5 in April, adding to the already heavy demand for safe haven assets.
USD/JPY dropped to a fresh 3-month low of 79.13 before closing the North American session down 1.3% on the day to 79.25 vs. 80.32 late Wednesday. This massive move did not go unnoticed by officials in Japan: “I think there is a high possibility to see MOF/BOJ intervention as soon as tonight,” if the yen drops below the 79.00 mark, comments Masafumi Takada of BNP Paribas in a recent interview with Dow Jones Newswires.
The yen has also fallen to new 4-month lows against both the Australian and New Zealand dollars, with AUD/JPY falling to and closing down 1.6% at 78.36 vs. 79.62, while NZD/USD closed down 1.5% at 60.45 vs. 61.36. EUR/JPY slid to a 3-month low of 100.53 before closing the day down 1.5% at 100.63 vs. 102.12.
As leaked earlier on the day, the downgrade by Moody's on 16 Spanish banks including Bank Santander is now a reality. Moody's cut 1 to 3 levels L-T ratings on the banks while placing negative outlook. Euro is mostly unmoved on the news, which were largely expected, just the timing was unknown. No surprise here.
According to Moody's: "The debt and deposit ratings declined by one notch for five banks, by two notches for three banks and by three notches for nine banks. The short-term ratings for 13 banks have also been downgraded between one and two notches, triggered by the long-term ratings changes."
Moody's adds: "The outlooks on the debt and deposit ratings for ten of the 17 banks downgraded today are now negative. For the remaining seven banks affected by today's actions, their ratings remain on review for further downgrade, for reasons specific to each bank (as discussed separately below)."
Global markets remain predominantly focused on European developments, inspiring a broad contraction in risk appetite and fueling demand for the USD and JPY across the board.
The latest headlines have done little to ease market tensions, with Fitch Ratings having downgraded Greece’s sovereign debt from B- to CCC, Moody's ratings having downgraded 4 Spanish regions, and the ECB announcing yesterday that it will temporarily exclude several Greek banks from its liquidity operations.
“While stronger global data should eventually support global markets, we see a significant recovery in risk appetites as unlikely until there is a positive political breakthrough in Greece,”
The EUR/CAD pair has extended its bounce from recent 16-month lows, having pushed above the 1.2900 mark to touch a 4-day high of 1.2938 this Thursday in North America, last quoted up 0.5% on the day at 1.2930.
The bull pressure comes on the back of general Loonie weakness, and despite Fitch Ratings’ recent downgrade of Greece’s sovereign debt from B- to CCC, and Moody’s downgrade of 4 Spanish regions.
Should the advance continue in the hours ahead, further resistance noted at 1.2953 (9 March 2012), then at 1.2992 (6 Feb low). To the downside, support lies at the 1.2900 mark, then below at 1.2882. EUR/USD last trades at 1.2716, practically unchanged from its opening price, while USD/CAD is last quoted at 1.0166 vs. 1.0119 late Wednesday.
U.S. stocks lost further ground on Thursday while Treasury yields touched their lowest level ever following weak economic data and as Europe's worries continued to hit Wall Street. The biggest driver of European concern is Greece's inevitable exit from the euro zone.
The Dow Jones Industrial Average fell 133 points, or 1.1% to 12,464.63. The S&P 500 shed 17.28 points, or 1.3% to 1,307.52. The Nasdaq Composite slid 55.26 points, or 1.9%, to 2,818.78. The U.S. dollar extended its rally into a 14th session. Worthy of note, Facebook has announced 421.2 million shares priced at $38/share, the largest internet IPO in history.
Pivot: 1.2705Most Likely Scenario: Short positions below 1.2705 with targets @ 1.264 & 1.26 in extension.
Alternative scenario: Above 1.2705 look for further upside with 1.276 & 1.2815 as targets.
Comment: The pair is rebounding but stands below its bearish channel upper boundary.
Pivot: 1.5835Most Likely Scenario: Short positions below 1.5835 with targets @ 1.5735 & 1.5695 in extension.
Alternative scenario: Above 1.5835 look for further upside with 1.589 & 1.595 as targets.
Comment: The pair is posting a rebound but stands below its resistance.
Pivot: 79.7
Most Likely Scenario: Short positions below 79.7 with targets @ 79.1 & 78.65 in extension.
Alternative scenario: Above 79.7 look for further upside with 79.95 & 80.2 as targets.
Comment: The RSI is capped by a declining trend line.
Pivot: 0.9895
Most Likely Scenario: Short positions below 0.9895 with targets @ 0.9795 & 0.978 in extension.
Alternative scenario: Above 0.9895 look for further upside with 0.9925 & 0.9965 as targets.
Comment: As long as the resistance at 0.9895 is not surpassed, the risk of the break below 0.9795 remains high.
Pivot: 1572.00
Most Likely Scenario: LONG positions above 1572 with targets @ 1600 & 1608.
Alternative scenario: The downside penetration of 1572 will call for a slide towards 1557 & 1550.
Comment: The RSI is bullish and calls for further upside.
Pivot: 92.90
Most Likely Scenario: SHORT positions below 92.9 with targets @ 91.6 & 91.
Alternative scenario: The upside penetration of 92.9 will call for a rebound towards 93.75 & 94.25.
Comment: As long as 92.9 is resistance, look for choppy price action with a bearish bias.
