In a sharp move overnight the yen has made major gains against the feeble euro and has moved higher vs. the dollar.
The euro/yen cross has collapsed by 3% and trades well under the 100-yen level after touching record lows of 98.05. There was no sign of
Bank of Japan
intervention and traders have been able to push a thin market to new records. Optimism over the Japanese economy was helped by the announcement that Japanese household spending rose 3.8% from a year ago, the first rise in seven months.
Dollar/yen is trading at 103.00 after seeing lows of 102.60 compared with last night's New York close of 105.30. Traders are so confident that the BOJ's
business sentiment survey on Monday will be strong that they were able to move in anticipation of those data.
The euro remains under selling pressure and has lost any gains made yesterday. After closing at $0.9610, the euro is now opening in New York at $0.9550.
"Big institutions need to stop expecting
the euro to go higher," said Thomas Jelf at
Warburg Dillon Read
. He thinks there are "many long-term players who are still holding positions on the basis that the euro is going to stage a significant recovery. These positions will not be cleared out of the market until the 12-month forecast is below 100."
There was little interest in comments by German Finance Minister
that France and Germany both had an interest in seeing a strong value for the euro.
Euro/yen is the focus of the forex market's attention. Yesterday the cross closed solidly higher at 101.25 in New York. The cross is now trading at 98.30, a drop of 3% in one trading session. Traders in Tokyo reported that "everyone is just dumping euro/yen." There is considerable surprise that the BOJ has not intervened, particularly as it was estimated that the bank spent about $10 billion in market interventions in March. "There is definitely backing for the yen as the economy is looking stronger and the
is holding above 20,000," Jelf said.
Sterling Stays Steady
Sterling has remained steady against the dollar and is presently little changed at $1.5930. Euro/sterling is at 59.90 pence, back down around yesterday's record low.
U.S. personal income and spending for January came in around expected levels and should not affect forex trading.
Caution is advisable in reading too much into today's move as the market is quite thin and, as noted here, the forex action continues to be dominated by short-term speculative players looking for quick opportunities. Expectations for the tankan survey are now so high that it is quite likely that the actual news will be a disappointment. It is possible that the BOJ decided to stay out of the market to allow the euphoria to subside under its own weight.
It hardly needs to be repeated that traders remain profoundly skeptical toward the euro and are confident that the
European Central Bank
can do little to boost the currency other than "talk up" the possible future gains of the euro zone. Strategists are now looking for euro/yen levels in the 90-to-95 range.