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The Japanese Ministry of Finance intervened for the third time in two weeks to halt the decline in USD/JPY. Today's move though had a touch of irony as it came after a two-notch downgrade of Japanese debt to Aa3 by Moody's. Japanese officials were upset by Moody's decision but were also weary of the dollar's decline to 6-month lows below 123 yen. The dollar initially rose after the announcement, but momentum soon faded and traders sent it down from 123.50 to 123.00. At that moment the dollar was just shy of overnight 6-month lows of 122.82 and prompted the Japanese to react. USD/JPY soared by 150 pips to a session high of 124.59.
The euro and Swiss franc also rose as gold continued its bull run to fresh 2-year highs. EUR/USD bounced off of support at 93.60 to a high of 94.01 before edging lower following the intervention. Support is seen at 93.60, its trendline resistance. Backing that is 93.00 and 92.80.
Despite the two notch downgrade and intervention, USD/JPY continues to edge lower, looking to break below 124 again. Support is seen at 123.00, the last intervention level.
USD/CHF also edged lower before rebounding on dollar buying. Overnight, USD/CHF broke below 1.56 support, and is now facing the next target at 1.5530 followed by 1.5470-80. Medium term support seen at around 1.5350, which is the trend line support extending from the June 23 low thru Jan 5 2001 low thru the Sep 21 low. Chances of a rebound seen facing initial pressure at 1.5690-00, followed by 1.5755-60.
Markets today will await the revised reports on consumer sentiment and Q1 productivity as well as the Purchasing Managers' Index from the University of Chicago. Factory orders will also be scrutinized for the latest on capex in the US. At 8:30 AM Eastern time, Q1 productivity is expected to be revised down to 8.4% or 8.2% from the advanced reading of 8.6%. But the downward revision is not seen hurting the dollar as long as we still see the 8% handle, which is already a substantial jump from 5.5% and 1.1% in Q4 and Q3. AT 10 AM, is the final May figure for University of Michigan on consumer sentiment seen unrevised at 96. But the ensuing declines in US stocks after the preliminary survey was taken in the first 10 days of the month might cause a slight decline. The Chicago PMI for May is expected to register a slight drop to a slight decline to 54 from 54.7. Markets will pay attention to the prices paid index--for any inflationary signs-seen at 54.4 from 55.4. Factory orders, also due at 10 AM, are expected to have risen by 0.7-0.9% in May from 0.4%, registering the 5th consecutive monthly increase.
Japan MoF's Kuroda says Moody's downgrade was unjustifiable and wants it to immediately rethink its rating decision. Japan FinMin Shiokawa says there is no change in policy despite Mooday's decision. Moody's says it is still possible for Japan to reverse fiscal deterioration in medium term. Moody's says Japan policies insufficient to prevent further deterioration in debt position.
The BoJ Governor Hayami said that the Japanese economy is entering its third phase of recovery since the end of the bubble years and pointed out to importance of getting ahead with economic reforms. Hayami was especially pleased about increased exports and industrial output. USD/JPY support starts at 122.80-- the double bottom low on Nov 29-30 of last year. Next target seen at 122.50 followed by 122.20. Intervention action from Japan could push dollar back up to 124.50, but follow up pressure is seen weighing just above 125.