Dollar Reaches 5-Month Low Against Yen

Daily Analysis - 17/04/2017

North Korea Tensions Stoke Safe Haven Demand

The US dollar slipped to a five-month low against the Yen early on Monday as rising geopolitical tensions relating to North Korea saw investors turn to the safety of the Japanese currency. A failed missile launch combined with a multilateral effort including China and Russia continue to raise the spectre of an armed conflict unfolding.

Dollar Bears Show No Signs of Withdrawing

Regional tensions in Asia have been steadily risen over the past few weeks as US President Donald Trump aims his sights on diminishing the tough rhetorical taken by Pyongyang.

The increase in uncertainty regarding North Korea’s leadership brought about a fresh round of selling in the dollar early last week, pushing the greenback below the psychologically key 200-day moving average of JPY 108.80 with analysts at UBS reckoning that the recent weakness is unlikely to end soon.

With the Euro heavily undervalued, investors could jump on to the common currency at the first signs of an ECB decision to taper asset purchases further, adding to the prevailing dollar softness according to notes written for clients.

USDJPY is down in early Monday trade, and was last seen trending around 108.350 with major support below sitting at around 107.550.

Chinese GDP Growth Accelerates

The Chinese economy grew at 6.90% during the first quarter on a year-on-year basis, buoyed by the government’s massive infrastructure spending and a booming property market.

The consensus of analysts surveyed by Reuters had forecast 6.80% growth during the first quarter, unchanged from the fourth quarter. First quarter GDP rose 1.30% from the previous three months, significantly below the 1.70% reported for the three months to December, figures from the National Bureau of Statistics showed.

While some Chinese data has been upbeat in 2017, many economists expect the world's second-biggest economy to lose momentum throughout the second half of the year as the effect of stimulus measures begin to fade.

Furthermore, measures designed to curb the overheated housing market may also contribute to slowing growth.

After tumbling last week on the back of US dollar weakness, the USDCNH pair is back on the climb following the GDP announcement earlier.

US Business Inventories Drag on GDP Outlook

According to the US Commerce Department, business inventories rose in February, suggesting that inventory investment could prove to be a headwind to first-quarter growth.

Business stocks are a key component of GDP, with the 0.30% increase back February matching the January report. Retail inventories edged 0.30% higher, compared to the 0.40% gain reported in last month’s advance report after surging 0.90% back in January.

Nevertheless, inventory momentum is pressuring growth expectations lower, with the Atlanta Federal Reserve projecting first quarter GDP growth at an annualized pace of just 0.60%. Analysts at JPMorgan believe that inventories could subtract nearly a full percentage point from the first quarter growth figure.

S&P 500 June futures are down around 2325 in early trade. The level, which coincides with the lows of March, could provide short-term support for the equity benchmark.

Lira Gains on Erdogan’s Referendum Victory

The Turkish Lira rallied as much as 2.50% after Turkey voted to grant President Tayyip Erdogan sweeping new executive powers that is likely to rekindle investor interest in this year’s worst-performing emerging market currency.

According to state-run Anadolu Agency, 51.40% of voters cast their ballot in favour of Erdogan’s proposals to consolidate executive powers. Voters supported a set of constitutional reforms that will give Erdogan greater input in policy matters, including the discretion to appoint top ministers and judges.

Analyst say his victory should remove some uncertainty after last year’s failed coup brought about downgrades from credit-rating agencies, plunging the Lira to record lows.

USDTRY has been in a multi-year bull trend, with the pair hitting a lifetime high of 3.94100in early January. USDTRY is currently trading around the 3.6600-mark as the Lira retreats from earlier gains.