Bernanke’s comments trigger risk-aversion in yen-related pairs

EUR:

The euro was not the prime focus of the currency markets last week - the action was elsewhere, more prominently in the US dollar and the Japanese yen. Against the US dollar, the single currency managed to regain some of the ground lost in the week before but failed to surpass the 1.30 level again. Unless this resistance level is not taken out we might see EUR/USD revisit the 2013 year low at 1.2750 again in the coming weeks, as we expect further range-trading ahead within 1.2750:1.30. Foreign exchange investors will focus on CPI data out of the euro zone on Thursday and unemployment data out of Germany as well as Slovenian GDP figures for the first quarter on Friday.

USD:

Action in financial markets last week was very much dominated by Ben Bernanke's speech in front of the Joint Economic Committee of the US Congress on Wednesday. He warned that premature steps of tightening could undermine the recovery of the US economy, but also stated that tightening and tempering are two different concepts. He hinted that the Fed will take a step down in their pace of purchases - a clear sign that the US Federal Reserve will eventually reduce its $85 Bln -a-month-bond-buying program during the upcoming meetings. Since this could be the beginning of the end of ultra-easy money for banks, heavily exposed investors pushed the sell button in equities and bought the greenback as an immediate reaction. Against the Canadian dollar the greenback reached the highest level since June 2012 on Thursday, just shy of the 104 level. With a comparatively light economic calendar this week and a potential continuation of the correction in equity prices, we do not expect much of a change with regards to the recent dollar strength.

JPY:

The Japanese yen showed the strongest weekly gain since August 2011 and recorded gains against all major currencies. The yen strength was triggered by Ben Bernanke's testimony before the US congress last Wednesday when his comments sparked a sell-off in Japanese equities on Thursday. The Nikkei 225 Index lost 7 % or more than 1000 points on Thursday. This was a relatively big move for a single day but keeping in mind the 70% advance of the Nikkei Index since last November, such a move had to be expected sooner or later as the index was heavily overbought.  This "risk-off" move in the equity market spilled over into the foreign exchange market with yen crosses selling off heavily on Thursday and Friday. After marking a multi-year high at 133.82 earlier in the week, EUR/JPY did finish the week more than 300 pips lower at 130.78. AUD/JPY experienced similar losses and USD/JPY is testing the support in the 100 area. This short term yen strength was also supported by comments from Bank of Japan Governor Kuroda who said the central bank had already provided sufficient monetary stimulus.

AUD:

Commodity currencies were weaker again last week. The Australian dollar continued to underperform against all major currencies on talks of major Asian central banks unwinding their long AUD positions, although the pace of the selling somewhat slowed last week. AUD/USD has lost roughly 800 pips since the start of the sell-off that saw its inception early in May. The Aussie also lost 1.6% against the neighboring kiwi dollar within the same period.

CHF:

EUR/CHF rallied to a fresh high for the year at 1.2651 last week after talk that the Swiss National Bank could raise the implemented floor on the pair from 1.20 to 1.25. After the above mentioned comments from Bernanke this move reversed and the Swiss franc gained strongly on Thursday and Friday as a result of safe-haven capital flows in light of the sell-off in equity markets. EUR/CHF finished the week at 1.2431 - 220 pips below Wednesday's high of 1.2651.

Gold:

Gold managed to stabilize last week after having closed at a two year low the week before. A lower high at 1337 $/ounce was established and the shiny metal recovered roughly 80$ off that level. The overall trend remains down and as long as gold trades below 1500$/ ounce we are in bear market territory from a technical perspective. Exchange traded funds (ETF) have been net-sellers of Gold for the 15th week in a row and we expect that trend to continue. Only a sharp drop in the greenback could reverse that trend - a highly unlikely event in the current market environment with talk that the FED will soon cut back on its quantitative easing program.