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By Gaurav Kashyap, Alpari ME DMCC
Initial estimates showed that up to one-third of Japan's refining capacity was affected, with refineries going offline and ports closing. On the lower end of estimates, 500,000 barrels of output per day have been affected, with the Chiba Refinery (175,000 bpd) operated by Kyokuto Petroleum and Tonengeneral's larger Kawasaki refinery (335,000 bpd) near Tokyo also reporting temporary closures.
The near month WTI contract dropped below $100 a barrel during the European session before finding support at 99 levels, which technically is the 23.6% retracement level from the March 7th high. The hype surrounding the planned Friday protest in Saudi Arabia passed without consequence, easing concerns that unrest could further spread in the region.
Friday's catastrophic earthquake off the coast of Japan saw a large inflow into the Japanese Yen as domestic investors fled into the currency as a safe haven. The Yen appreciated more than 1.37% against the US Dollar on Friday, erasing most of its losses from earlier in the week.
US Dollar gains against Euro, Sterling on hint of end of QE programme
Barring the Yen, the US Dollar had a strong week against its other major counterparts and gained against the Euro and British Pound for the first time in four weeks. The Greenback was largely supported by strong sentiments which hinted to an end to the Federal Reserve's QE program in June.
Dallas Fed President Richard Fisher announced in comments from earlier this past week that he may vote to end the bond buying plans if he deemed it to be "counterproductive." EURUSD posted a yearly high of 1.4036 before being dragged lower following the announcement that Moody's dropped Greek government debt a notch and downgraded their outlook to negative. The pair went on to break through 1.38 levels and post an intraweek low of 1.3752 after the rating agency downgraded Spain's credit rating, reignited concerns of a debt crisis among Euro-zone peripheries.
Portuguese debt raising activities went on without too much a fuss; the Portuguese debt agency sold EUR1bn of bonds on offer due September 2013, with an average yield of 5.993%. This compares to the 4.086% yield from a similar auction from last September. Although the offer fell at the top end, the higher borrowing costs and lower bid-to-cover ratio (dropping from 1.9 to 1.6) raised fears of a potential bailout.
The pair was able to pare its losses after a successful meeting amongst EU leaders brought risk appetite back into Euro crosses. Minutes of the meeting showed leaders agreed to widen the scope of the EFSF (European Financial Stability Facility) bailout program as well as reducing Greece's borrowing costs on their bailout loans. The news was welcomed by the markets and provided some respite to an already under pressure EURUSD; the pair was able to recover and close just 87 pips lower at 1.3903.
New Zealand sees 0.5% rate cut
This past week saw the interest rate decisions from the Bank of England and the Reserve Bank of New Zealand which slashed rates by 0.50% to a revised 2.50%. The larger than expected cut led to the NZD posting a more than five month low of 0.7323 against the US Dollar. Markets were largely poised for a cut of up to 0.25% as New Zealand struggles to cope with the $15bn losses as a result of its worst earthquake in 80 years at the end of February.
Growth forecasts for the small island nation were slashed in half and the rate cuts were widely expected in an effort to stimulate growth and borrowing. The pair was able find good support and recover to close the week slightly higher as the US Dollar weakened on Friday. The aforementioned BoE kept their rates unchanged at 0.50% and kept their asset purchase program unchanged at GBP200bn.
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