Forex - Yen rises on carry trades unwinding and comment from BoJ

The Yen strengthened on Monday as investors bailed out of some risky Yen-funded currency bets and fears spread that sub-prime mortgages would bring further troubles at US banks. Speculators closing out of "carry trades" bought back Yen to repay low-interest loans contracted in the Japanese currency to bet on high-interest currencies. Carry trades typically dwindle on heightened perception of global investor risk, which was set off by Citibank's saying late Sunday it may suffer an $11 billion write-down for sub-prime losses, on top of the $6.5 billion it wrote in October.   
Yesterday, UsdJpy was down 0.45% at 114.33. The EurJpy fell 0.64% to 165.54. The Yen was also boosted by hawkish comments from Bank of Japan Governor Toshihiko Fukui, who underscored the need to raise interest rates in a timely manner. Japan's benchmark interest rate is 0.5%. Elsewhere, EurUsd weakened 0.21% to 1.4444, "resting a bit" after its surge last week, said analyst. The EurUsd reached a record high on Friday of 1.4528 and 1.4531 this morning.
While risk in credit markets was seen as less unnerving than fears gripping the sector in August, some analysts saw hints of a renewed credit tightening, perhaps linked to concerns about problems at major US banks.
For the first time in a month, the three-month London Interbank Offered Rate (LIBOR) rose by 1bp, a development that bears watching, said Kenneth Landon, senior foreign exchange strategist at J.P. Morgan. Last August, the Yen strengthened when the credit market squeeze was at its worst this year, with LIBOR at nearly 7%, versus 4.875% yesterday.
Reflecting weakening confidence in US banks, US financial stocks fell 1.3% Monday to a two-year low, dropping much further than the broader U.S. equities market.
In other trading, the high-yielding Australian dollar fell 0.31% Monday against the Dollar to 0.9206. Investors and analysts widely expected Australia's central bank will raise interest rates on Tuesday by 25bp to an 11-year high of 6.75%. Australia has been a favorite target of the carry trade.

EurUsd Outlook remains bullish following last Friday break of 1.4500 key level. Next resistance holds 1.4530 March 1995 trend high and this morning high. On the downside, a return below 1.4280 former resistance may threaten the trend and reopen the way down toward 1.4000 nearby support and 1.4125 trendline support. Initial support holds 1.4500 former key level.

GbpUsd Cable remains positive following recent break of 2.0654 key resistance. It confirmed the return of the bull trend paving the way for strength toward 2.1000 and a channel top at 2.1030. On the downside, it would need renewed pressure below 2.0200 and further weakness toward 2.0000 psychological level and 1.9880 support to confirm trend change. Initial support holds 2.0654 former key resistance.

UsdJpy Trend remains bearish. It has been consolidating within last week high and low 115.92 and 114.81. Further drop below 114.81 might push toward 113.26 and 112.61 and retest of ultimate 111.60 (August 17 low). On the upside, it still need a confirmation over 117.63 resistance to open the way for further extend toward 119.06 (61.8% retracement of 123.67 to 111.60 decline). Key support holds 114.

UsdChf broke 1.1500 pivot point this morning. Trend remains bearish pointing lower to 1.1454 today low and 1.1288 Dec 2004 low. Market will look at 1.1110 April 1995 low. Initial resistance holds 1.1500 Pivot point. It would need a return over 1.1640 to relieve the immediate bear threat.