A change of perception in Thursday’s China interest rate cut provided the main drive in Asian markets. Thursday’s initial risk-on react tone to the move, along with upbeat expectations that the Fed’s Bernanke would hint at QE3 in his testimony, had taken USD/JPY to highs in NY of Y79.80, EUR/JPY to Y100.63. However, Bernanke disappointed as he repeated that the Fed had the tools but held off any signal of an imminent use of QE3. Dollar-yen pulled back to Y79.66 into the NY close, getting an early lift in Asia to Y79.75 as market positioned for an expected positive reaction in equities to the China move. However, Tokyo’s view was that the cut was pre-empting the possible release of weak China data this weekend. Asian equities moved sharply lower, with AUD/JPY and EUR/JPY leading the move back into the Japanese currency as risk-on quickly moved back to risk-off. EUR/JPY dropped back from an early posted high of Y100.27 (NY close Y100.06) to Y99.21, the move dragging USD/JPY to Y79.23. The reversal of risk outlook expected to provide a heavy tone through Europe.
EasyForexNews Research Team