Precious metals and JPY are back in vogue as potential for QE3 lurks

Today’s price action was interesting as yesterday’s FOMC meeting minutes, which hinted that further quantitative easing may be needed if economic conditions deteriorate, was put to the test on the back of the abysmal U.S. Philadelphia Fed data which came in at -5.8 vs. expectations of 10.0. This sent the buck, which at the time was near its respective highs on the day, reeling as it sparked speculation of QE3. Interestingly, the USD managed to claw back most of its prior gains relative to the European and commodity based currencies, however it continued to weaken versus the JPY as broader ‘risk’ sentiment melted into the close – The Dow Jones Industrial Average finished lower by about -1.24%, S&P 500 fell by -1.51% and U.S. 10-year yield was sunk by -3.59% on the day.

With treasury yields (10’s) closing at their lowest level of 2012 (1.697%) and looking poised to test their 2011 lows around 1.671%, it helped to explain USD/JPY significant reversal on the day. On May 8th, I highlighted this potential in one of our CHARTS TO WATCH – FYI, the alternative EW count is now invalid, which opens the door open to further downside. Presently, USD/JPY sees the 61.8% retracement (of the February/March rally) around 79.10/15, followed by the 200-day sma (78.50/55) and then the November-January highs around 78.20/30.

Elsewhere precious metals, for the first time in a long time, partook in the flight to safety as Gold rallied +2.23% and Silver +3.03% on the day. While technically, they were clearly oversold and as they approached their 2011 lows between $1520-35 and $26.00-20 respectively it made them ripe for a bounce. However, it was now until the aforementioned Philly Fed data before they truly took flight – Thus, proving this was more than just a short-covering technical bounce and more in-line with a risk adverse move. Conversely, US oil (WTI) suffered further losses, down by around -0.27% on the day, as deteriorating economic conditions here in the U.S. was just further evidence of slowing global growth and thus less demand for petroleum products.

On the data front for the upcoming Asia/Pacific session is the release of Japan’s April Nationwide & Tokyo Department Store Sales, Japanese Cabinet’s monthly economic report, China April Property Prices and China May Flash business Sentiment survey.

Source: Forex.com

17.05.2012