USD/JPY Can Also Fall

Well someone finally took the other side as far as the USD/JPY is concerned. Japanese Economics Minister Akira Amari stated overnight that “an excessively weak currency could impact import costs and households. As the currency pair was well overbought to begin with, the USD/JPY retreated a full big figure, falling from a high og 89.63 to a low of 88.62.

As many analysts have noted over the past few days, the markets have gotten extremely short JPY due to the opinion that Japan would become much more aggressive with its stimulus package under new Prime Minister Abe. When you have that type of market position, the slightest comment “against” that position will trigger a reversal.

USD JPY Falling January 15 2013
USD JPY Falling – Click image to enlarge

Amari’s comment stated that while a weaker JPY would benefit the export market the spike in import prices could cause a harmful effect on people’s livelihoods. All this rhetoric from both sides means the BOJ meeting next week will certainly be in the spotlight. Besides the discussions on continued easing, the BOJ will need to decide on a new leader as Governor Shirakawa will be stepping down in April.

Technically, there is support for USD/JPY at 88.60, followed by 88.35. Resistance remains at 89.65, then 90.00. This latest reversal burned many traders’ positions and for the moment has cooled talk of the 90.00 level. It still seems inevitable, but probably takes a little while longer to happen.

The EUR had a mixed overnight trading session, staying rangebound against the USD, while weakening against the JPY and strengthening against the CHF. EUR/CHF rose to a 52 week high of 1.2384, well above the “floor” imposed by the SNB of 1.2000. It seems the good news for the EUR will continue for the near term. Ratings agency S&P raised their outlook for Luxembourg and Finland to stable from negative, and affirmed both countries AAA rating. The outlook for the Netherlands remained negative.

After flirting once again with the 1.3400 level, the EUR drifted lower, but most technicals still point towards a test of 1.3425 in the near term. For the moment, EUR resistance remains at 1.3400, then 1.3425, while support emerges at 1.3330, then 1.3310.

In his speech yesterday, FED Chair Ben Bernanke did not surprise anyone. He stated that there are some positive signs of improvement in the economy, but there was still a ways to go. He said that things are moving forward though not as fast as the FED would like. He also stated that the quantitative easing that has been in effect is having a positive effect on bringing longer term rates down and that it had been an effective tool. He did not give any reason with his comments that the FED would exit their policy easing before the end of 2013.

Expect a range trading day as traders will once again take a run towards the 1.3400 area at some point. Comments from Congress as well as the President regarding negotiations on the debt ceiling issue are sure to heat up and could effect the USD. A failure at 1.3400 will once again see the EUR sold off, but a move below 1.3320 is not expected.

Further reading:  Forex Analysis: EUR/USD Tentatively Maintains Bullish Trend

Matthew Lifson

Matthew Lifson

Matthew Lifson is a Foreign Exchange Trader and a Market Analyst. with Cambridge Mercantile Group.