Yen crosses hit multi year highs as carry trade remains in full swing

Yen crosses hit multi year highs as carry trade remains in full swing. RBNZ intervene for second time in a week as NZD profits from the carry trade.

last week’s currency trading review

The Dollar began the week with plenty of focus on Treasury Bonds, as retreats in the 10 year note caused initial dollar weakness. The greenback was further weighed upon as poor housing starts gave little support to the dollar. Late in the week the USD did gain some support in an unexpected buoyant release of Philly Fed survey, before ending the week on the slide against most other currencies. The Euro rallied throughout the week breaking 1.34 despite poor data releases in the form of the German ZEW and IFO index. With ongoing speculation that the ECB would look to increase rates, the Euro remained and attractive currency for carry trades with the EURJPY cross reaching an all time high of 166.12. The EURUSD closed last week at 1.3365 having opened at 1.3413   The Japanese Yen continued to be sold in order to fund high yielding currencies with speculation of future rate hike from their respective central banks. As a result Yen carry trades across the board touched multi year highs, with EURJPY all time high, GBPJPY 15 year high, as well AUDJPY and NZDJPY testing all time highs also. With recent dovish BoJ comments, investors continue to source low interesting bearing currencies in the appetite for risk. The JPY opened last week at 123.61 and closed at 123.87. The GBP was the biggest mover throughout the week as markets were surprised by Wednesday’s release of the BoE minutes for the June meeting, which showed that officials had voted 5-4, in favor of keeping rates unchanged (4 votes for a rate hike). Post publication markets immediately began pricing in a rate hike as early as next month. With investors hungry for appetite, GBPJPY reached 15 year high helping the GBPUSD test the $2 late in the week. The GBP closed last week at 1.9992 having opened at 1.9835.  The AUD was range bound for much of the week with the absence of data. Investors still found much appeal for the AUD being a high yielding currency despite recent RBA comment which was interpreted to be short term dovish. With AUDJPY cross reaching multi years highs, the Aussie dollar was in sight of the 85c level to end the week. The AUDUSD closed last week at 0.8470 having opened at 0.8434. In other news, speculation was rife that the RBNZ chose to intervene for the second time in a week on Monday. Despite this, investors were not deterred from the attractive 8% call rate in New Zealand; as a result the NZDUSD reached a 22 year high (since floating in 1985) above 0.7640.   

The forex trading week preview

In the States; housing data is the theme for the early part of the week as both Existing and New Home sales scheduled for release on Monday and Tuesday respectively. Other key economic data will also be out in the form of Durable Goods (Wednesday), GDP (Thursday) whilst Core PCE, Chicago PMI and Michigan Sentiment will all be released on Friday. Undoubtedly the one piece of event risk out this week will be Thursday’s FOMC meeting and accompanying statements. We will provide our previews and reviews of these data releases in the daily summary.

In the Eurozone; more activity is expected out of the EZ with Current Account released on Tuesday. Consumer Confidence and CPI will ensure that there is no quiet end to the week out of the EZ. In the UK; focus will be on BoE Governor King’s speech on Thursday ahead of Friday release in GDP, Current Account and Consumer Confidence. We will provide our previews and reviews of these data releases in the daily summary.

In Japan; will be extremely busy with Retail Sales (Tuesday) heading a long list of economic data. Things quiet down somewhat with only Industrial Production due for release on Wednesday, before things heat up considerably on Thursday as CPI (both Tokyo and Nationwide) and Unemployment Rate will be made public. Housing Starts will round off the week on Friday. We will provide our previews and reviews of these data releases in the daily summary.

In Australia; another quiet week is expected this week out of Australia. In New Zealand: Trade Balance (Wednesday), Current Account Balance (Thursday) and GDP (Friday) ensure that the kiwi dollar will continue to be a point of interest throughout the week. We will provide our previews and reviews of these data releases in the daily summary.

The currency in focus

The New Zealand dollar hit 22-years high against the USD on Thursday, the highest since being floated in 1985, as the appetite for yield remains strong. The kiwi jumped to a high of 0.7680, despite threats for further central bank intervention in the market. The Reserve Bank of New Zealand (RBNZ) has twice intervened over the past 15days to lower the kiwi and most likely to intervene again shortly. The kiwi has benefited from healthy economic growth and high interest rates which makes the currency quite popular in carry trades, where investors borrow in a low-yielding currency such as yen, to buy an asset or currency with higher returns. The New Zealand dollar has long been a favorite of Japanese investors, pushing NZDJPY to hit 20-year high last week. Next week sees a host of important data, including gross domestic product, trade and current account figures. Opportunities could arise as markets may test the central bank’s resolve in keeping the NZD weak. Key short-term resistance centers on 0.7700 on the topside with previous resistances of 0.7650 and 0.7620-30 now acting as support (see chart below). Look for NZD/JPY to possibly continue making multi-year highs.

Euro 1.3465

Initial support at 1.3371 (June 21 low) followed by 1.3326 (Jun 14 former high). Initial resistance is now located at 1.3514 (Jun 7 high) followed by 1.3556 (Jun 5 reaction high)

Yen 123.85

Initial support is located at 123.09 (June 20 low) followed by 122.86 (Jun 15 low). Initial resistance is now at 124.17 (Jun 22 trend high) followed by 125.00 (Psychological round number)

Pound  1.9990

Initial support at 1.9869 (June 20 low) followed by 1.9824 (Jun 19 low). Initial resistance is now at 2.0000 (Psychological round number) followed by 2.0076 (May 1 reaction high)

Australian Dollar  0.8480

Initial support a 0.8428 (June 21 low) followed by 0.8333 (Jun 14 low). Initial resistance is now at 0.8500 (Psychological round number)) followed by 0.8558 (Jan 1989 forwer low)

Gold  654.20

Initial support at 646.50 (June 14 low) followed by 643.50 (June 13 low). Initial resistance is now at 662.35 (61.8% retracement 674.00 to 643.50 decline) followed by 674.0 (June 4 high)