Forexpros – The U.S. dollar ended the week close to a six-week low against the yen on Friday, as concerns over the deepening crisis in the euro zone and expectations for more stimulus from the Federal Reserve supported demand for the safe haven yen.
USD/JPY hit 78.41 on Thursday, the pair’s lowest since June 5; the pair subsequently consolidated at 78.46 by close of trade on Friday, down 0.98% on the week.
The pair is likely to find support at 77.98, the low of June 4 and resistance at 78.81, last Thursday’s high.
Market sentiment soured on Friday, amid growing fears that Spain will need a full bailout, after the state of Valencia requested financial aid from the government. In addition, Spain’s government cut growth forecasts for 2013 and said the economy would stay in recession next year.
The news sent Spain’s borrowing costs soaring, with the yield on Spanish 10-year bonds rising to 7.26%, above the critical 7% threshold widely considered unsustainable in the long run.
The euro fell to an 11-year low against the yen on Friday, with EUR/JPY down 1.14% to settle at 95.39.
The dollar had come under selling pressure earlier in the week as market participants focused on testimony by Federal Reserve Chairman Ben Bernanke amid speculation that weak economic data out of the U.S. would prompt a third round of quantitative easing by the central bank.
Bernanke said growth had lost momentum in the first half of the year and added that progress on cutting the U.S. unemployment rate was “frustratingly” slow.
However, he refrained from indicating whether a fresh round of stimulus was imminent, but reiterated that the central bank was prepared to take further action to support the economic recovery if necessary.
In Japan, Finance Minister Jun Azumi said Tuesday that the yen’s strength did not reflect economic fundamentals and indicated that the government was prepared to intervene to protect the country’s largely export driven economy from the negative effects of the stronger yen.
“Sudden yen gains or excessive currency moves could harm the economy. We will carefully watch the market and will take firm measures on currencies when needed,” he said.
In the week ahead, investors will be focusing on developments in Spain. Market participants will also be anticipating U.S. data on second quarter economic growth, in order to gauge the strength of the country’s recovery.
Ahead of the coming week, Forexpros has compiled a list of these and other significant events likely to affect the markets. The guide skips Monday, as there are no relevant events on this day.
Tuesday, July 24
Federal Reserve Chairman Ben Bernanke is to speak; his comments will be closely watched for clues to the possible future direction of monetary policy. The U.S. is also to release preliminary data on manufacturing activity, a leading indicator of economic health.
Wednesday, July 25
Japan is to publish official data on its trade balance, the difference in value between imported and exported goods and services.
Later Wednesday, the U.S. is to publish official data on new home sales, a leading indicator of economic health, as well as data on crude oil stockpiles.
Thursday, July 26
Bank of Japan Governor Masaaki Shirakawa is to speak in Tokyo; his comments will be closely watched for clues to the possible future direction of monetary policy.
Later in the day, the U.S. is to release official data on durable goods orders, a leading indicator of production, as well as data on pending home sales and initial jobless claims.
Friday, July 27
Japan is to release official data on consumer price inflation, which accounts for the majority of overall inflation. The country is also to publish government data on retail sales, the foremost indicator of consumer spending, which accounts for the majority of overall economic activity.
The U.S. is to round up the week with advance data on second quarter gross domestic product, the broadest measure of economic activity and the foremost indicator of the economy’s health. Meanwhile, the University of Michigan is to release revised data on consumer sentiment and inflation expectations.
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