By Masataka Nakamura, BridgeNews
Tokyo--Jan. 22--U.S. dollar/yen and euro/yen fell on stop loss selling.
However, the market retraced some of its losses after the loss cut selling pressures subdued. Then, profit taking buying gave support to the pair and the cross. Dealers said that stop hunting features the markets, with lack of significant news.
The falls in dollar/yen and euro/yen were exaggerated by the break of technical support levels in the vicinity of 116.90 and 109.05. There were no significant fundamental developments behind these moves.
Dollar/yen dropped from 117.15 to 116.25 with a large Japanese bank leading the charge to trigger stop-loss orders. Profit taking and Japanese commercial bids, combined with a bounce in euro/yen lifted it to 117.05 from there, but it faced resistance at 117.20 from a tentative hourly line of the 119.90 high.
There are bids at 116.00/10 and more stops below 116.60. Meanwhile, the top side was well capped by dollar long liquidation pressures and corporate dollar selling pressures around the 117.00 area. Euro/yen's fall from 109.50 to 108.55 on the selling from U.S. investment banks and European names. Large stops were triggered from the 109.00 area.
Meanwhile the downside movement was limited by heavy euro/yen demand from Japanese investment accounts around the 108/60 area.
Overall, the market focused on technical weakness of the dollar/yen and the euro/yen than fundamental new in Monday' session. The market was not sensitive to the following new.
Yoji Hamada, assistant vice president Japan-FX at Bank of America said that covering of yen short positions against the dollar and the euro weighed on the dollar/yen with lack of strong incentives. Hamada also noted that the dollar/yen is currently in a technical correction phase.
Dollar/yen volatilities remained firm, despite lower dollar/yen on the spot market. The 1 month option volatility on USD/JPY is currently quoted 13.20%-13.60%. Good buying of out-of-the money calls for 120-122 strike was conducted during the Asian morning session, which supporting the volatilities.
Those option players see a dip in the USD/JPY and volatilities as buying opportunities for out-of-the money USD/JPY calls, as they see bullish course
Japan Ministry of Finance director general of the international bureau Zembei Mizoguchi said the Ministry of Finance and Bank of Japan have basically the same FX stance.
The index for activity in Japan's service industry--which accounts for 60% of Japan's economy--rose 0.6% on month on a seasonally adjusted basis in November, after it had shown no change in October, the Ministry of Economy, Trade and Industry (METI) announced Monday. METI also said the index for activity by all industries, an indicator of the movement of gross domestic product, increased 0.4% in the month. Both sets of data were better than expected, but they failed to have an impact on the forex market.
Fukushiro Nukaga, Japan's state minister in charge of economic and fiscal policy, said he would continue fulfilling the duties of his post. The comment followed Japanese newspaper reports that Nukaga will resign Monday.
Japan's LDP policy council chairman Shizuka Kamei said that he wishes to compile measures to support the stock market this week or next week.
The Bank of Japan's economic view turned slightly cautious on future risks for the economy. The BOJ said that net exports have gone into a decline due to slower growth in overseas markets. The central bank also said that tempo of output increases is slowing significantly. Regarding household income, the BOJ said that the improvement is likely to remain slow for a while.
Euro/yen's fall from 109.50 to 108.55 on U.S. investment bank selling knocked EUR/USD down from 0.9347 to 0.9330 this morning. Euro/yen's subsequent bounce to 109.52 saw EUR/USD rise to 0.9367 on short covering. There is a feeling that euro/dollar moved as a function of euro/yen trade in Asia Monday
Juergen Donges, chairman of the German government's council of economic advisers, told BridgeNews Sunday that he does not see the ECB cutting interest rates in the near future. Moreover, Donges projects that German economic growth will be affected by the slowdown of the U.S. economy in 2001, however he sees increasing demand within the euro zone as a compensating factor. There are Democratic Senator Zell Miller of Georgia will cosponsor President George W. Bush's bill to cut taxes by more than one trillion dollars over 10 years, the CBS News program Face the Nation reported Sunday. Miller will join Sen.
Phil Gramm, R-Texas, in introducing the bill in the Senate on Monday, program moderator Bob Schieffer said. The bipartisan effort to work on tax cut legislation should be a positive step for the economy. Meanwhile, for the financial market, whether the timetable for a tax cut can be advanced or not to lessen downside risk for the economy would be also a key issue, though there have not been significant indications on the matter yet.
Some 75,000 northern California residents were hit with a 20-minute electrical outage late Sunday, the result of equipment failures in a state electrical system already operating under emergency conditions.
Cable stalled around 1.4640, while USD/CHF traded 1.6355-90. The U.K. economy needs a big boost from both monetary and fiscal policy if it is to avoid slipping into recession, according to the latest assessment of the economy by the Ernst and Young ITEM Club. ITEM, which uses the Treasury's model of economy, predicted tax cuts in the spring budget and 100 basis points of interest rate cuts by the start of 2002. But even allowing for these injections, growth is forecast to slow from about 3.1% in 2000 to 2.1% this year and 2.0% next year before recovering to about 3.0% in 2003.
Meanwhile,underlying inflation (RPIX) is expected to average 2.1% this year and 2.0% in 2002.