JPY, CHF Up With AUD, NZD, GBP Punished As Metals Shine

across the board through the European session as USD/JPY retreated to ¥97.75, EUR/JPY fell to ¥130.41, GBP/JPY sputtered to ¥151.69, and AUD/JPY came off to ¥87.41. Japanese August small business confidence ticked higher to 49.7 from 49.4 but the yen took its cues from an escalation of tensions in the Middle East where U.S. military action in Syria is said to be days away following last week’s reported chemical attack near Damascus. JPY and CHF both gained ground on the rise in tensions as safe haven plays. Reuters reported Japan plans to spend a record US$ 257 billion on debt service during the next fiscal year, up 13.7% y/y and an indication of Abenomics at work. Finance minister Aso said the government must end the deflationary contraction and restore fiscal soundness. Various entities continue to call for a reduction in the corporate tax rate while the government convenes this week to deliberate higher retail taxes. BoJ Deputy Governor Iwata speaks tomorrow.

The Swiss franc gained ground against most major currencies through the European session as USD/CHF fell to CHF 0.9182, EUR/CHF receded to CHF 1.2287, CHF/JPY moved lower to CHF 106.10, and GBP/CHF weakened to CHF 1.4264. Syrian jitters saw the franc sharply higher on safe haven demand. The UBS July consumption indicator will be released tomorrow and the August KOF leading indicator is due on Friday.

The Australian Dollar was punished against most rivals through the European session as AUD/USD came off to US$ 0.8935, EUR/AUD climbed to A$ 1.4958, and GBP/AUD gained to A$ 1.7398. There were no major Aussie numbers released today and A$ came off as some carry trades were unwound on account of Middle Eastern tensions. PM Rudd, standing for election shortly, called on Australia to diversify its economy further as the Chinese “boom” concludes. Chinese data released today saw July industrial profits up 11.1% y/y and the July leading index improved to 100.18 from 99.81. Vice finance Minister Zhu said China is undergoing an economic restructuring, adding it will maintain a “prudent” monetary policy and reach its 2013 employment goal. PBoC’s Yi reported the G-20 will discuss the implications of a reduction in the Fed’s QE taper.

The Euro was mixed against most major currencies through the European session as EUR/USD sank to US$ 1.3321, EUR/GBP improved to £0.8615, EUR/AUD rocketed to A$ 1.4958, and EUR/NZD rallied to NZ$ 1.7202. EUR gained some ground after the German August IFO business climate index improved and exceeded expectations at 107.5, up from 106.2. Also, the IFO’s current assessment index rallied to 112.0 and the IFO expectations index gained to 103.3. ECB’s Coeure is expected to speak later today. Moody’s was supportive of recent Eurozone advances but warned GDP is likely to reach pre-crisis levels in the medium-term.

Gold and Silver raced higher through the European session with Gold reaching US$ 1412.67 with support at $1395.67 and Silver reaching US$ 24.334 with support at $23.980. Gold’s gains were stoked by heightening tensions in Syria where UN chemical weapons inspectors were attacked yesterday and inspectors may file reports that could lead to the ouster of Syria’s Assad. Russia warned the U.S. against military involvement and the geopolitical risk for Gold and Silver involving Syria is quite acute. Speculative long Gold positions increased 29% to 73,216 futures and options by 20 August, according to the CFTC, while short contracts fell for a second consecutive week to the lowest since 12 February. Physical demand remains quite strong but talk of the Fed’s QE taper is keeping some Gold bulls sidelined. Recent demand from central banks and sovereigns has been noted with Russia, Kazakhstan, Azerbaijan, Kyrgyzstan, and Guatemala adding reserves.

Crude Oil consolidated through the European session as Brent crude futures fell to US$ 110.04 after being capped at US$ 110.56 and WTI crude futures fell to US$ 105.67 after finding resistance at US$ 106.34. Uncertainty about disruption in Middle Eastern supply and shipping lanes is impacting Oil trading as U.S. Secretary of State Kerry called the “indiscriminate slaughter of civilians…by chemical weapons…a moral obscenity.” U.S. EIA’s weekly data tomorrow are expected to show crude inventories rose by 700,000 barrels last week, the first climb in four weeks. Libya reported exports from Brega have resumed as protests have eased and it was also reported that a tropical storm near Mexico has weakened to a depression.