USD/JPY Highest in Almost 4 Years

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USD/JPY is the lead story this morning as the Japanese Yen weakened to its lowest level in almost 4 years. USD/JPY touched the 99.00 level as reports came in from Japan that the BOJ may start their JGB purchases as early as this week. The move in the JPY was aided by a report that Japan’s current account surplus came in at JPY 637.4 billion in February, compared to analyst’s prediction of JPY 457.5 billion. This number had been in deficit for the last 3 months through January.

Last week, the Bank of Japan announced an increase in monthly bond purchases to JPY 7.5 trillion. Many analysts had not expected much from new BOJ Governor Haruhiko Kuroda at his first meeting.

As we move closer to the next BOJ meeting on April 26, the markets are no expecting further policy announcements from the BOJ. While many analysts had expected a move towards USD/JPY 100.00 by mid summer, this latest move has analysts raising that forecast to the 103.00 level now.

As far as the technical levels are concerned, the move overnight saw USD/JPY break through a few resistance levels, and now resistance can be seen at 99.10, followed by 99.50 and 99.75. Support for the USD/JPY is at 98.75, and 98.40. Traders are targeting the 100.00, and it seems only a matter of time before we get there. For historical reference, USD/JPY has not traded at the 100 level since April 2009.

In other currencies, after trading lower and testing support at 1.2970, the EUR has once again moved back above the 1.3000 level. Reaction to the release of Friday’s Non-Farm payroll number apparently is trumping news coming from Portugal. Overnight the Prime Minister announced that reductions in operating expenses would occur after the constitutional court blocked a plan to suspend monthly payments added state workers and pensioners checks. He stated that Portugal is in a “more fragile position” regarding negotiations with the “Troika”, on extending maturities of bailout loans. Analysts expect the problems in Cyprus, Italy and Portugal to eventually weigh on the EUR, but at present the markets are looking at weaker US data from Friday and reacting to that.

Eurozone Sentix Investor Confidence fell for the 20th straight month in April to -17.3, after a -10.6 number in March. Market consensus for this number had bee a decline to -13.1.

The EUR has been given added support based on the weakening on the JPY. EUR/JPY purchases have helped keep the EUR better bid. Technical resistance levels at at 1.3020 and 1.3050, where barrier option sales appear. Support for the EUR is at 1.2990 and 1.2970.

Moving forward, the markets will focus on FED speakers this week as well as the release of FOMC minutes on Wednesday as traders look for any hints about an end to QE. It should be noted that the USD and the US equity markets had some correlation last week as ISM and NFP releases put pressure on both. It is possible that moving forward US economic data could begin to have a stronger impact on the markets.

Further reading: 5 Most Predictable Currency Pairs – Q2 2013

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About Author

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

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