Broker's Notes: Yen rises to a 15 year high

Yen

Japanese yen strengthened to a new 15-year high low against the US dollar on Tuesday ahead of a Japanese ruling party leadership vote in which the prime minister faces a challenge from a proponent of more aggressive fiscal stimulus. The dollar was also near a one-month low against a basket of currencies after suffering its steepest fall against the euro in two months the previous day as rising investor risk appetite helped the European currency. The dollar/yen rate has closely tracked US-Japan yield gaps, partly because a smaller gap means less incentive for Japanese investors to buy US debt instruments. And on Monday, dollar/yen came under pressure due to falls in US bond yields despite strength in global shares.

Euro

The euro traded around $1.2870, down slightly on the day’s high but keeping much of Monday's 1.6 percent gains following solid data from China and relief over new Basel III banking rules. It faces a major resistance point around around $1.2920-30, a level that has blocked the currency a few times since August. The dollar index is languishing at 81.86, down slightly on the day and near a one-month low of 81.760 hit on Monday and its 200-day moving average of 81.761. Although the index recovered from a brief foray below the 200-day moving average last month, another break below that could stoke pessimism over the US currency.

Gold

Gold ticked up on Tuesday as the US dollar slipped against other currencies and physical demand picked up, while silver was steady near its strongest since early 2008 on hopes of a recovery in the global economy. Investment demand however witnessed a slide. The SPDR Gold Trust, the world’s largest gold ETF, said its holdings dropped to 1,292.619 tonnes by Sept 13 from 1,293.531 tonnes by Sept 10. The holdings hit a record 1,320.436 tonnes on June 29.

Technically gold is held in a tight range it’s not clear which direction will the break to. The immediate resistance is sighted at $1,256, the 76.4 percent Fibonacci retracement level on the fall from 1,262.25 to 1,236.55, based on a Fibonacci projection. However gains beyond that could be limited to 1262; any downside from here may find a good support first at 1242, followed by 1236. A close below to 1,232 will confirm the resumption of the bear trend; this will extend losses immediately to 1,224.

Indian rupee

The Indian rupee strengthened on Tuesday as shares rallied more than 1 percent, boosting hopes for more portfolio inflows. The dollar's losses versus major currencies also helped sentiment. Shares were trading up 0.8, after having climbed more than 1.4 percent earlier, as bullishness over the Indian growth story continued to lure investors. Foreign based investors have bought shares worth $13.7 billion so far in 2010; in addition to last year's record $17.5 billion purchases.

India's wholesale price index inflation was below expectations for August, rising an annual 8.5 percent, government data showed on Tuesday. The data was the first in a new series with a different base year of 2004/05, new components and weightings. Under the old series, August inflation was 9.5 percent compared with a median forecast for 9.6 percent in market poll. The below-forecast inflation may ease pressure on the central bank to tighten monetary policy at its mid-quarter review on Thursday. Before Tuesday's inflation data, the Reserve Bank of India had been widely expected by economists to lift key interest rates by 25 basis points each on Thursday.

Oil

Crude oil futures ended higher for a second consecutive session on Monday as uncertainty over when an Enbridge oil pipeline would resume flowing and upbeat Chinese economic data combined to push prices to their highest levels in more than four weeks. Enbridge said Monday it had cleaned up most of the oil leaked by the largest crude pipeline connecting the United States and Canada, but had no estimate for when shipments would resume. Hurricane Igor churned westward in the Atlantic Ocean as a dangerous Category Four storm and could strengthen even further, forecasters said. However, Igor, capable of causing catastrophic damage, posed no immediate threat to land or energy interests.

Source: Richcomm Global, Dubai; www.richcommglobal.com