Market Drivers for July 22, 2013
Abe wins election as expected, but not outright majority for LDP
USD/JPY comes under profit taking in the wake of results
Nikkei-0.47$ Europe -0.06%
Oil $108/bbl
Gold $1315/oz.

Europe and Asia:

North America:
USD Chicago Fed Nat Activity Index 8:30
USD Existing Home Sales 10:00

As expected Shinzo Abe coasted to a comfortable win Japan’s upper house elections, but the LDP party failed to secure an outright majority resulting in profit taking in USD/JPY that saw the pair tumble below the 100.00 mark in Asian session trade before stabilizing my morning European dealing.

Mr. Abe’s LDP party won 65 seats while his coalition partner New Komeito won 11 seats giving the LDP control of both houses of parliament for the first time since 2007. Investors initially greeted the news with enthusiasm as USD/JPY opened up at 100.80 in New Zealand, but the pair quickly came under profit taking pressure as the results provided no upside surprise.

As we noted on Friday, LDP needed to win 72 seat in order to assume outright majority in the upper house and it was not able to accomplish that. Furthermore, investors were also concerned that given LDP wide base of membership, the party may be resistant to enacting radical reforms as it instead concentrates on solidifying its power.

The combination of “sell the news dynamic” along with very illiquid summer markets in Asia caused plunge in USD/JPY with the pair hitting a low of 99.60 before finally finding some footing by late Asia trade. With the focus on the Japanese election now over, attention will turn back to the US and the direction of the pair for the rest of the week will likely be driven by US economic data.

To that end today’s Existing Homes sales report will provide key insight into the state of the housing market which remains critical to the US recovery. Last week/s Building Permits and Housing Starts both missed their mark suggesting that the spike in US rates could be dampening demand.

Today, the market is looking for a print of 5.27M units versus 5.18M the period prior. If the Existing Homes data meets or beats expectation the dollar may get a boost with USD/JPY rising towards the 100.50 mark. However if the data misses, USD/JPY could come under a second wave of selling pressure with shorts targeting the 99.50 level as the day progresses.

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