Mid-Day Report: Yen Sold off as Risk Appetite Returns

The Japanese yen is sharply lower today as investors' risk appetite returns. US stock markets extend yesterday's sharp gain following strong rally in global equity markets. There is further support to investors' optimism by upbeat earning reports from JP Morgan Chase and Coca-Cola that beat analysts' estimates. In additional, new residential construction data was much better than expected in Jun. Housing starts jumped sharply by 9.1% to 1.066M while building permits jumped 11.6% to 1.091m. Jobless claims climbed to 366k but was below expectation of 380k. Though, Philly Fed index improved less than expected to -16.3 in Jul.

Dollar, on the other hand, remains bounded in tight range against other major currencies. The overall outlook in the greenback remains bearish in short term as EUR/USD, GBP/USD and AUD/USD are all still holding well above key near term support levels. Though, the outlook in USD/JPY and USD/CHF is less clear with carry trade activities taken into consideration Swissy was also pressured after ZEW index fell more than expected to -76.9 in Jul.

EUR/JPY Mid-Day Outlook

Daily Pivots: (S1) 165.51; (P) 166.18; (R1) 167.04; More.

EUR/JPY's fall from 169.66 was supported by mentioned 165.50 cluster support (23.6% retracement of 151.71 to 169.66 at 165.42, 38.2% retracement of 158.60 to 169.66 at 165.43) and rebounds strongly today. Break 167.15 flips intraday bias back to the upside and argues that price actions from 169.66 is just developing into sideway consolidation. Further rally could now be see to test 169.66 high but firm break is needed to confirm recent up trend has resumed. Otherwise, risk of another fall remains.

In the bigger picture, EUR/JPY's break of 168.93 key medium term resistance indicates multi month consolidation that started at 168.93 should have completed. Further rally could be seen to 61.8% projection of 130.60 to 168.93 from 151.71 at 175.40 first but this view is shaky at this moment. Note that bearish divergence conditions remains in daily MACD, arguing that upside momentum is still not convincing. Break of 165.50 cluster support will argue that EUR/JPY has failed 170 psychological resistance and made a short term top and deeper decline may follow. But medium term outlook will remain neutral at worst as long as 149.27 medium term support holds.

Forex News Digest

• U.S. Housing Starts & Building Permits Soar in June
• U.S. Jobless Claims Rise to 366K in Week Ending July 12
• Foreign Investment in Canadian Securities Grows as New Bond Purchases Accelerate
• Overnight News Recap: Quiet Day in Europe & Asia-Pacific
• ECB's Wellink Says Mistake in Thinking Inflation Will Slow as Economy Slows
• Yen, Swiss Franc Decline as JPMorgan Earnings Increase Appetite for Risk
• Dollar May Rise Next Year as U.S. Weathers Slump, Deutsche's Fukaya Says
• Bernanke, Frank Forge Improbable Alliance Over Meltdown in Housing Market
• Australia, New Zealand Dollars Decline as Traders Raise Bets on Rate Cuts

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