Binary bets of the week: Just when you thought it was safe to relax for the weekend
by Dave Evans of binary.com
Just when you thought it was safe to relax for the weekend
Until the early part of the European session, this week was heading for the forgotten archive of history, with no real movement or telling economic data to digest.
This was until Friday morning when a triple news hit helped to spark markets into life.
1. The yen halts its decline
For most of the week, the Japanese yen saw a continuation of the recent selling pressure, sparked by the unexpected extension of its quantitative easing program at the end of October.
This pressure eased on Friday, after Japanese finance minister Taro Aso commented that the pace of the decline in the yen was too fast. While no immediate action was offered, or even expected, it was taken as a cue for traders to book some profits from the last few weeks. Quite how long this selling pressure will ease is unclear and a resumption of the previous trend is not to be discounted.
USD/JPY daily chart
The USD/JPY daily chart above above shows how the strong USD and weak JPY has driven the USD/JPY sharply higher since October 31st, with Friday’s respite little more than a pause for now.
2. The euro stumbles
The USD/JPY’s pullback on Friday would have been much sharper were it not for the persistently strong US dollar. The greenback was directionless for much of the week, until ECB president Draghi’s speech hit the newswires, sending the euro lower and the dollar index higher.
Draghi reiterated that the ECB was prepared to take further action to tackle slow growth and inflation across the Eurozone. As has been the case in other recent ECB speeches, Draghi said nothing new, but his emphasis and timing was interpreted as a signal that would mean activities that include the purchase of government bonds to boost liquidity.
Previously viewed as off limits, especially by German lawmakers, such a move is slowly moving towards acceptability and if it were to happen, we could see a substantial decrease in the value of the euro.
EUR/USD daily Chart
True to their nature, currency traders were quick to price in the risk of this happening, driving the EUR/USD lower by around 1.00%. The biggest movements were seen on the EUR/JPY however as the weak euro met the renewed vigour of the Japanese yen.
3. China Stimulation
The final act in Friday’s drama was the news that the People’s Bank of China would cut one year benchmark lending rates to 5.6% and deposit rates to 2.75%.
AUD/USD Daily Chart
The news fuelled a renewed interest in industrial commodities and the currencies of major commodity producers. It was a great day therefore for the Australian dollar which supplies the raw materials for China’s still growing economy to such an extent that that the AUD/USD can often be taken as a proxy for China.
The AUD/USD rose by nearly 1% on Friday and would have pushed even higher were it not for the renewed strength of the US dollar.
Risk Back On… For Now
Overall it has been a strong end to the week for risk markets, especially the S&P 500 and those currency pairs seen as a proxy for risk taking. One such pair is the AUD/JPY which marks the relative confidence in China’s industrial growth against the Japanese yen which is often popular during flights to safety.
A strong pro-growth move from the PBOC will be great news for the Australian dollar, while at the same time, the Japanese yen has some proving to do before this pullback can be seen as buying opportunity – especially with the US dollar still so strong.
Therefore it may pay to back a continuation of the longer term trends and bet on the AUD/JPY to end higher this time next week.
Disclaimer: This financial market report is intended for educational and information purposes only. It should not be construed as investment or financial advice and you should not rely on any of its content to make or refrain from making any investment decisions. Binary.com accepts no liability whatsoever for any losses incurred by users in their trading. Fixed odds trading may incur losses as well as gains.
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