Daily Forex Outlook: Yen (JPY) Finally Advances versus Greenback (USD), Euro (EUR)

on Nov 23, 2012

While the last couple of days have been difficult for the yen, concerns that it might have been oversold boosted Japan’s currency, helping it to rally from a seven-month low against the US dollar and the euro. Despite the lack of an actual deal, Greece-related optimism continued to boost the single currency with traders expecting European leaders to reach an agreement early next week.

**Yen Recovers from a Seven-Month Low**
Although the yen had a hard week, it is off to a good start on Friday, with Reuters reporting that Japan’s currency edged up from a seven-month low versus both the euro and the greenback. The US dollar slid 0.2 percent to ¥82.28, pulling away from ¥82.84, its strongest level since early April. The euro in turn declined 0.1 percent to ¥106.09, below the seven-month high of ¥1060.585 seen on November 22.

While the yen depreciated on account of speculation that the opposition Liberal Democratic Party (LDP), seen as winning the upcoming elections in December, will pursue aggressive monetary easing by the Bank of Japan (BOJ), it would seem that the yen’s recent drop was too rapid. “Some investors may think the recent rally in dollar-yen has been a bit over-extended and it’s time for a bit of a correction,” notes Lee Wai Tuck, a currency strategist at Forecast Pte, as quoted by Bloomberg.

Others, however, expect that election speculation will continue to weigh on the yen. “I think the LDP is going to have to continue to sound more aggressive without sounding ridiculous,” points out Rob Ryan, a strategist for RBS (LON:RBS), as quoted by Reuters. “So the threat will always be there, ahead of the election that we get comments that send the yen weaker.”

**Greek Optimism Still Supporting the Euro**
!m[Recent USD/JPY Rally Seen As Over-Extended](/uploads/story/882/thumbs/pic1_inline.png)The euro which on November 21 was supported by German Chancellor Angela Merkel’s comments that a Greek deal was possible on Monday continued to advance on Greece-related optimism. Reuters reports that Greek deal expectations were further boosted by Olli Rehn, the European commissioner for economic affairs, who noted that Greece had taken all the steps necessary for securing its next tranche of aid and Eurozone finance ministers should be able to sign off definitively on funding on Monday. “The market expects officials to agree on a Greek package,” noted Andrew Salter, a currency strategist at Australia & New Zealand Banking Group (ASX:ANZ), as quoted by Bloomberg, adding that he “wouldn’t be surprised if the euro presses on a little further ahead.”

**Asian Currencies Headed for a Weekly Gain**
On November 23, Bloomberg reported that Asian currencies were set for a weekly gain for the first time in a month, with manufacturing data from China improving the region’s economic outlook. South Korea’s won appreciated 0.5 percent to 1,086.25 per dollar, whereas Malaysia’s ringgit climbed 0.5 percent to 3.0591. The yuan in turn gained 0.13 percent to 6.2277.
“Growth momentum in Asia is clearly taking off,” commented Enrico Tanuwidjaja, an RBS economist, as quoted by Bloomberg. “We have seen some slowing down but not a collapse. That’s why Asian currencies are supported.”


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