Forex Analysis: Risk Trends Reversal May Boost Yen, Bypass US Dollar

The Japanese Yen is poised to rise but the US Dollar may fail to capitalize as risk appetite suffers a setback across financial markets.

Talking Points

Aussie, Kiwi Dollars Rise on Risk Appetite and Supportive Data
US Consumer Confidence to Hit Five-Month Low in January
Sentiment Reversal May Boost Japanese Yen, Bypass US Dollar

The Australian and New Zealand Dollars outperformed on the back of a pickup in risk appetite as well as a round of supportive data in overnight trade. On the data front, December’s New Zealand Trade Balance report revealed an unexpected NZ$486 million monthly surplus while the year-to-date shortfall narrowed to –NZ$1.21 billion. Meanwhile, Australia’s NAB Consumer Confidence Index posted the largest monthly increase in over a decade. NAB chief economist Alan Oster attributed to “improvements in [global] financial and equity markets.”

Another quiet day of European event risk once again turns the spotlight on the US docket. January’s Consumer Confidence is in focus, with expectations pointing to a third consecutive decline to put the gauge at the lowest level in five months. S&P 500 index futures are pointing lower, arguing for a cautiously risk-averse mood ahead of the opening bell on Wall Street. Such an outcome may boost the Japanese Yen but parallel support for the US Dollar appears questionable. Indeed, correlation studies point to an unraveling of the link between the greenback and sentiment trends over recent months.

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