“I want to take you higher”. This seems to be the traders intention as far as the USD/JPY and the EUR are concerned as we begin the trading week.
The JPY continues to be sold against all major currencies as traders react to comments made on Sunday by PM Abe that “it is important for a joint statement from the government and the Bank of Japan to include an inflation goal of 2%”. This was one of the main proponents of PM Abe’s candidacy and he seems intent on getting it done. He also mentioned that the next BOJ governor that will replace Shirakawa in May should be someone ready to initiate the bold monetary steps the government intends to implement. It was also noted that the LDP party is considering buying foreign securities in the amount of JPY 50 trillion to help weaken the JPY.
All of this rhetoric has seen the USD/JPY rise as high as 89.65 overnight, and the EUR/JPY go above 120.00 for the first time in two years. Technically, the first resistance level in the USD/JPY is the psychological level of 90.00, followed by 90.35 and 90.50. It certainly looks as if the JPY will continue to be under pressure until after the Bank of Japan meeting on January 21-22. The move to weaken the JPY is being applauded by domestic manufacturers. A strong JPY hurts overseas competitiveness of Japanese companies. Most of these companies would like to see the USD/JPY trade between the 90.00 and 100.00 area and it looks as if they will get their wish sooner rather than later.
According to Vice Finance Minister Nakao, “Japan is not engaging in competitive devaluation”. He stated that the JPY is simply correcting from its excessive appreciation against the EUR and USD, since there seems to be “signs of stability” in Europe and the US, with the US having avoided the fiscal cliff.
The EUR is looking well bid this morning as well, having briefly cracked the 1.3400 resistance level before easing back into the mid 1.33’s amid profit taking during early morning trading.
Fed Chairman Ben Bernanke speaks today in Michigan on monetary policy. It has also been reported that some FOMC members are looking to cut back on the $85 billion purchase of Treasuries and mortgage debt during 2013, based on the FOMC minutes released last week. The Q & A after the chairman’s speech will be worth a listen to see if there are any hints given about how US monetary policy will continue during 2013. His comments will decide whether traders add additional risk going forward.
Technically, the EUR is now targeting the 1.3500 area after breaking the strong resistance level at 1.3320 last week. The stronger resistance level of 1.3385 has been reached and broken. Adding to the positive EUR tone are comments from IMF head Lagarde that she believes the Eurozone will begin to recover from its crisis this year. She pointed towards the building of the banking union and the successful implementation of austerity measures by member states as the most important reasons for her belief in the improvement of the EU economy. She also believes that Greece will attain better results than expected.
So, it looks like the direction of the currencies will be determined by the economies attached to these currencies. Traders will look at these releases and determine whether or not the improvements are there.
The prevailing feeling at the moment is “pro-EUR”, and this probably continues for awhile. It would seem a logical expectation that EUR will test the 1.3400 level once more. Only a close today below 1.3310 would signal a reversal of sentiment, but I don’t think that happens.
Further reading: The Fed is likely to remain gold’s best friend
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