Dollar, Japanese Yen Driven Higher by Risk-Aversion

by: The LFB

Overall, the major currencies traded side-ways during the Asian and the European sessions, but posted strong declines compared to the dollar during the U.S. trading hours. Most of the declines came ahead of the earnings season, as some investors expect the quarterly numbers to be grim rather than rosy, which is what the financial market has already priced in over the last few months. The Japanese yen was the most affected currency in this direction, as it posted very strong gains on Wednesday.

The Euro (Eur/Usd) is trading slightly above the 50-day moving average, after it declined as much as 80 pips during the intra-day session. Moreover, the euro also tested the 1.3840 support area on Wednesday, which has acted as a major swing point for almost 6 weeks now.

The Pound (Gbp/Usd) and the aussie traded in similar fashion on Wednesday. The pairs developed a side-ways channel during the Asian and the European session, from which were able to break only after the S&P futures started moving decisively lower. On the daily chart, the pound declined on Wednesday for the fourth consecutive day, and is now approaching the 50-day moving average.

The Aussie (Aud/Usd) moved most of the day in a 50-pip sideways channel on Wednesday, and was unable to break below it until after the U.S. open. From there, the pair tumbled almost 150 pips, to reach the lowest value since late May.

The Cad (Usd/Cad) had a somewhat strange day of trading on Wednesday. The Canadian dollar appeared very bullish during the early part of the overnight session, at a time when the other major currencies were falling compared to the dollar. However, as the market turned around, the cad failed to break lower, looking unlikely to move. During the U.S. session, the cad surged higher, to reach the highest value since May.

The Swissy (Usd/Chf) had only a 50-pip range on Wednesday, even though the rest of the major pairs saw rather strong momentum. TheLFB R1 (1.0935) was the resistance area that stopped the pair from breaking any higher, even though the pair touched this area the first few hours of trading.

The Yen (Usd/Yen) fell as much as 300 pips during the intra-day session, the most since mid-March, and at the same time, the yen reached the lowest value since February. Most of the declines came ahead of the earnings season, as investors fear that the worst is yet to come for the corporate sector. This has made the Japanese yen enter into a strong risk-aversion mode, which drove it higher against every other currency. As such, the yen rose as much as 650 pips against the pound, 390 against the aussie and nearly 500 pips compared to the euro.