The USD/JPY takes center stage overnight as traders continue to sell JPY as they prepare for the election that will be held on Sunday. The Liberal Democratic Party is expected to win the election and Shinzo Abe is expected to become the new Prime Minister, replacing Democratic Party of Japan leader Yoshihiko Noda.
With the election of Shinzo, JPY is expected to move lower, as his platform includes “unlimited easing” from the BOJ and achieving a 2% inflation target. The present target for the BOJ on inflation is 1%.
Additional news out of Japan did not help the JPY overnight. The quarterly Tankan report was released and the large manufacturers’ index fell to -12 in the quarter, compared to -3 in the prior quarter. Expectations had been placed at -9. The Bank of Japan meets next week and the consensus is that they will add another JPY 5-10 trillion JPY to the current JPY 91 trillion asset purchase and lending program.
All this negative news gave traders confidence in buying USD/JPY and the currency ran to a high of 83.96 overnight. Resistance is seen at 84.00, followed by 84.20. Support for the currency pair is set at 83.65, then 83.40.
Further reading: Japanese Elections: Potential Reaction of Currencies
The EUR remains well bid as traders are welcoming the European Union leaders’ decision to develop a system for handling failing banks within the EU. The approval has been considered EUR positive and it looks like “risk on” trades will continue through the end of the week as monetary policy in Japan and the United States has traders moving away from those currencies.
The EUR finally pushed above the 1.3100 area overnight, almost reaching the 1.3120 area, but has once again fallen below the level, trading in the mid 1.3080″²s as I write this at 4:45 am. That level remains strong resistance, with a break there targeting the 1.3170 high. Support at 1.3060, then 1.3040.
With one week left before the scheduled beginning of their Christmas vacation, there is still no movement in negotiations on the fiscal cliff. Democrats are blaming Republicans for not budging on the “fundamental issues”, while Republicans say the Democrats have “only moved backwards”since the beginning. There isn’t much expected to come out today regarding negotiations as Congressman Boehner left Washington and returned to his native Ohio for the weekend. In other labor news, President Obama was asked yesterday if he would be available to intervene in the National Hockey League’s ongoing work stoppage. While I am sure the President would rather be talking with Gary Bettman and Donald Fehr, he passed stating he had more pressing issues in Washington.
Look for the EUR to remain in its trading range throughout the day. As we get closer to the North American close, we could see a push higher as liquidity dries up.
Share
