DowntownForex

Forex Morning Update: Yen Surges as Stocks Fall

By Forex District – Asian stocks fell following the moves from Wall Street prompting investors to exit riskier trades. The Yen was the biggest beneficiary as it gained ample ground against higher yielding currencies. Weaker than expected data and fears that the recent moves in financial markets may have been overdone spurred a flight into the safety status of the Dollar and the Yen.

The Bank of Japan, by unanimous vote, left its overnight call rate unchanged at 0.10%. “Japan’s economic conditions, after deteriorating significantly, have begun to stop worsening,” the BOJ said in a statement today. “In the coming months, Japan’s economy is likely to show clearer evidence of leveling out over time.”

The bank noted its domestic private demand continued to weaken against a background of corporate profits, worsening employment, and income. While, on the other hand, exports and production have started to pick up with public investments also increasing. Signs of improvement in financial conditions have been experienced although at slow pace.

Although this remarks should have helped risk appetite strengthen, investors have been worried about the excessive moves made in the financial markets. Additionally, economic recovery may not be as quick as it has been speculated over the last few months.

BRIC Summit

The first official BRIC summit (Brazil, Russia, India, china) is scheduled to commence today and all eyes will be on possible Dollar comments. The BRIC’s are meeting to speak on various issues, including the credit crisis, their role in international affairs, and possibly the Dollar as a reserve currency. Uncertainty and worries about the outcome have built up within the marketplace.

Brazil, China, and Russia recently announced their intention to diversify their U.S. heavy reserves and to invest in International Monetary Fund (IMF) bonds which are backed by SDRs. If talks intensify, the Dollar could potentially come under renewed pressure.

European session

Key economic indicators will be released in the European session as sentiment and inflation readings are published.

News out of UK will start off things with consumer inflation expected to fall below the Bank of England‘s target rate of 2.0%. Consensus looks at the CPI to fall to an annual reading of 1.9%, seen primarily affected by household services.

The German ZEW economic sentiment, the focus out of the Euro area, will be released alongside the annual CPI figures and the EuroZone ZEW economic sentiment. Economists forecast the sentiment reading to print at 35.0, up from 31.1 and to stay in positive territory for a third straight month. Sentiment turned positive in April 2009, after being negative since August 2007.

Housing

The housing sector will take center stage in the U.S. session as building permits and housing starts hit the wires. Both readings are expected to remain virtually unchanged from the previous month. The producer price index will be released alongside and anticipated to rise by 0.6% from a +0.3% prior.

Lastly, U.S. industrial production probably fell further in May by 0.7% after having fallen 0.5% in April. Further falls are also expected on the capacity utilization rate to 68.5% from 69.1%, to register a new series low since 1967.

By Juan P. Bejarano. Edited by Graciela Gordillo

Originally Posted at Forex Distrcit.

Popularity: 3% [?]