Shinzo Abe officially took the helm as the new Prime Minister of Japan on December 26 following the Liberal Democratic Party’s electoral victory. Since assuming power, the new Japanese Government is continually exercising pressure on the Bank of Japan to pursue a more aggressive monetary policy.
The yen has fallen to its lowest level since August 2010 against the US dollar- Rudolf Muscat
Expectations of bolder measures and a more aggressive stimulus have weighed broadly on the Nipponese currency in recent weeks and forex analysts expect it to fall further.
The yen’s relentless slide, since Abe assumed office as Japan’s Prime Minister on Wednesday of last week, has seen it hit fresh two-year lows for three days in succession in the same week. Abe has vowed repeatedly, both during his electoral campaign and in comments made after gaining power, to press for aggressive monetary stimulus to fight deflation.
The yen has fallen to its lowest level since August 2010 against the US dollar, after comments he made in which he called on the BoJ to revise its inflation target to two per cent from the current one per cent, and threatened to revise an existing law on the bank’s independence if they refuse to meet his demands.
Last Friday, it hit a 28-month trough versus the buck and more than a 17-month low against the euro after data showed consumer prices and factory output declined.
USD/JPY rose to 86.64 on Friday of last week, and closed the week above its 200-week moving average by 84.95 for the first time since December 2007, paving the way for more gains in the near-term. Corrections after this sharp rise seem to be limited, and a break of the 87 mark should give scope for further rise to test 94.13, the 38.2 per cent Fibonacci retracement of the bearish move from June 2007 to October 2011. EUR/JPY jumped to 114.70 and approached a strong resistance level by 115.02, the 62 per cent Fibonacci retracement of the April 2010 to July 2012 sell off.
Increasing concerns over the fiscal cliff kept euro gains against the dollar in check at the end of last week. The euro traded close to its eight-month high against the greenback last Thursday, but pared its gains on Friday and the dollar index rose to a two-week high.
EUR/USD was up to 1.3284 on Thursday last week, but fell to 1.3166 on Friday as traders trimmed long positions on worries Washington lawmakers will not strike a deal on time and avert an automatic implementation of $600 billion in government spending cuts and tax hikes, more commonly known as the ‘fiscal cliff’.
Forex investors grew nervous as they waited to see the outcome of a last-chance round of US budget talks, as analysts said the greenback may benefit from safe-haven buying if no deal is reached by year-end.
Last Monday, as 2012 slowly faded away, the Senate was expected to reconvene at 1600GMT and could have been asked for a vote if both Democrats and Republicans managed to reach a last minute deal before 2013 set in. Overnight, ahead of week start, the private PMI reading for the Chinese manufacturing sector (for the month of December) was positive at 51.5 rising above the previous 50.5 and the expected 50.9.
With no major fundamental drivers and with typical low holiday season liquidity, the forex market remained hesitant, manifesting no major trends earlier this week. Yet the Aussie enjoyed support early Monday morning on the back of the stronger than expected PMI data out of China.
Having a look at the performance of the price of gold throughout December, we note that the yellow metal sheds around 2.80 per cent as it slips from open at $1,715.52 to the current $1667.10. Gold was unable to hold the psychological $1,700 level for most of December 2012.
In the medium term, to the upside a break of $1,800 would be key to more bullish potential as this level has capped moves higher since November 2011. Currently the price is trading around the 200-day moving average at $1,661.60; watch out if there is a clear break of $1,630.00 region, the 61.80 per cent retracement of the May-Oct 2012 move higher, as it could open the door to a larger sell off.
Upcoming FX key events:
Today: German Unemployment Report, US ADP Employment Report & US Fed FOMC meeting minutes.
Tomorrow: EZ PMI Services, US Non-Farm Payrolls, US Unemployment Rate, US Non-Manufacturing PMI & Canadian Net Change in Employment.
Technical key points:
EUR/USD is bullish, target 1.3500, key reversal point 1.2800.
EUR/GBP is bullish target 0.8265, key reversal point 0.7950.
USD/JPY is bullish, target 94.00, key reversal point 80.00.
GBP/USD is bullish, target 1.6600, key reversal point 1.5800.
USD/CHF is neutral.
AUD/USD is neutral.
NZD/USD is neutral.
I would like to take this opportunity to wish you and your families all the very best for the festive season, and a happy and prosperous new year.
trading@rtfx.com.
RTFX Ltd is licensed to conduct investment services business by the Malta Financial Services Authority. This information does not constitute an offer or solicitation and is provided for information purposes only. This information shall not be deemed to constitute advice and should not be relied on as such to enter into a transaction or for any investment decision.
Any opinions expressed in this document represent the views of RTFX at the time of preparation. They are thus subject to change without notice. RTFX believes that the information contained herein is accurate as at the date of publication. However, no warranty of accuracy is given by RTFX and no liability in respect of any errors or omissions, including any third party liability, are accepted by RTFX or any director, officer or employee.
Rudolf Muscat is a senior trader at RTFX Ltd.