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22 Apr 2013
Forex: USD/JPY marches towards 100.00, BOJ rate decision due out end of week
FXstreet.com (Barcelona) -The USD/JPY is opening the week on a strong note, up 30 pips from the Friday close at 99.83 last. The pair was well bid late last week after the G20 refrained from making any negative remarks towards Japan regarding recent aggressive QE policy. The Bank of Japan will be releasing its latest interest rate decision and outlook report later this week on April 26th at 3:00GMT.
The last time the pair traded above the 100.00 level was back in April 2009. According to Sean Lee at FXWW, “The Yen is again the focal point of interest in the FX market after the G20 failed to make any mention of Japanese policy toward its currency. USD/JPY is again challenging the physical and psychological barrier at 100.00 whilst some of the other crosses are also approaching important resistance levels. There is nothing of note on the economic calendar so we will rely on flows for market movement.”
He went on to add “There is still some heavy barrier protection reported ahead of 100.00 in USD/JPY and with real-money offers also reported, it will be no easy matter for the bulls to crash through this barrier. IMM positioning reports also show the Yen shorts have increased yet again and that might also encourage some profit taking ahead of a big level.”
Some analysts are looking at previous correlations for hints at the future direction of the pair. According to Kathy Lien of BK Asset Management, “Since November, USD/JPY enjoyed a nice steady rally that was supported by Shinzo Abe’s promise of aggressive monetary easing AND rising U.S. bond yields. During this time, stronger U.S. economic data and talk of tapering asset purchases boosted the dollar and Treasury yields. Now, the Japanese have delivered on easing, but U.S. yields have plunged and as a result, one side of the equation was breaking down, capping the rally in USD/JPY”.
She went on to add, “The turn in U.S. yields began in March, but the selling accelerated after a series of U.S. economic disappointments led investors to question the Federal Reserve’s ability to reduce stimulus by varying asset purchases. Even Fed officials are divided on what to make of recent reports. Some policymakers feel that the data is worrisome while others think the pull back is temporary. Either way, in order for USD/JPY to recover, we need U.S. yields to stop falling and start rising.”
From a technical perspective, the trend on the longer term time frames (daily/weekly) remains strong with further upside looking like a good possibility. According to Val Bednarik of FXStreet.com, “The USD/JPY left a small gap around 99.50, surging again near the 100.00 key level. She went on to add, “sentiment continues to be bullish for the pair, and retracements are expected to remain limited and be taken as buying opportunities by investors. The level has been prove strong in the past, and a large number of stops then should gather above: if triggered, the 102.00 level is then exposed for the upcoming sessions.”
The resilience of the USD/JPY to finish sharply higher last week even as equities and commodities were sold was impressive. If economic data surprises to the upside this week, it would not be surprising to see the pair have another solid showing as Yen carry trades are re-established with increasing risk appetite.
The last time the pair traded above the 100.00 level was back in April 2009. According to Sean Lee at FXWW, “The Yen is again the focal point of interest in the FX market after the G20 failed to make any mention of Japanese policy toward its currency. USD/JPY is again challenging the physical and psychological barrier at 100.00 whilst some of the other crosses are also approaching important resistance levels. There is nothing of note on the economic calendar so we will rely on flows for market movement.”
He went on to add “There is still some heavy barrier protection reported ahead of 100.00 in USD/JPY and with real-money offers also reported, it will be no easy matter for the bulls to crash through this barrier. IMM positioning reports also show the Yen shorts have increased yet again and that might also encourage some profit taking ahead of a big level.”
Some analysts are looking at previous correlations for hints at the future direction of the pair. According to Kathy Lien of BK Asset Management, “Since November, USD/JPY enjoyed a nice steady rally that was supported by Shinzo Abe’s promise of aggressive monetary easing AND rising U.S. bond yields. During this time, stronger U.S. economic data and talk of tapering asset purchases boosted the dollar and Treasury yields. Now, the Japanese have delivered on easing, but U.S. yields have plunged and as a result, one side of the equation was breaking down, capping the rally in USD/JPY”.
She went on to add, “The turn in U.S. yields began in March, but the selling accelerated after a series of U.S. economic disappointments led investors to question the Federal Reserve’s ability to reduce stimulus by varying asset purchases. Even Fed officials are divided on what to make of recent reports. Some policymakers feel that the data is worrisome while others think the pull back is temporary. Either way, in order for USD/JPY to recover, we need U.S. yields to stop falling and start rising.”
From a technical perspective, the trend on the longer term time frames (daily/weekly) remains strong with further upside looking like a good possibility. According to Val Bednarik of FXStreet.com, “The USD/JPY left a small gap around 99.50, surging again near the 100.00 key level. She went on to add, “sentiment continues to be bullish for the pair, and retracements are expected to remain limited and be taken as buying opportunities by investors. The level has been prove strong in the past, and a large number of stops then should gather above: if triggered, the 102.00 level is then exposed for the upcoming sessions.”
The resilience of the USD/JPY to finish sharply higher last week even as equities and commodities were sold was impressive. If economic data surprises to the upside this week, it would not be surprising to see the pair have another solid showing as Yen carry trades are re-established with increasing risk appetite.