Iran Deal Sparks Risk Flows, Sends USD/JPY Towards 102.00

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Market Drivers for November 25, 2013
Deal with Iran sparks risk on sends USD/JPY towards 102.00
Aussie hits 5 year lows against kiwi
ECB’s Hansson revives negative deposit rates again as euro slide towards 1.3500
Nikkei 1.54% Europe .45%
Oil $93/bbl
Gold $1230/oz.

Europe and Asia:
UK BBA Mortgages 42.8K vs. 45.2K

North America:
USD Pending Home 10:00

The news of a weekend deal between Iran and US that would lift some sanctions in return for limiting nuclear development, caused a selloff in global oil markets and sparked a mild rally in risk assets helping to lift USD/JPY through the key 101.50 resistance level on the first trading day of the week.

The rally in USD/JPY took the pair to a high of 101.93 before profit taking kicked in ahead of the key 102.00 level. The pair continues to gather momentum and despite showing clear signs of being overbought remains on path to test the yearly highs as long as US data is supportive. The latest CFTC data has shown USD/JPY longs at 6 year highs, but positioning in the currency market can remain over extended for a considerable period of time and for now may be more a signal to buy the pair rather than sell it.

Meanwhile the Aussie continued to see selling pressure as the unit fell to five year lows against the kiwi hitting a low of 1.1123. The divergence in the two currencies has accelerated as RBA remains steadfastly dovish, signaling that its is open to the possibility of another rate cut and even threatening the prospect of intervention. RBNZ on the other hand has already signaled the possibility of rate hike in 2014 and should it make good on its promise the AUD/NZD pair could slide to 1.1000 by year end on interest rate differential flows.

In Europe there was more talk of negative deposit rates, this time from ECB governing council member Ardo Hansson. His comments pushed the EUR/USD lower towards the 1.3500 level but the pair remained relatively steady. Despite the recent calls for unorthodox monetary measures from several ECB members, EZ monetary authorities are unlikely to implement such policies unless economic growth in Germany slows markedly. As long as Europe’s largest economy continues to expand it will try to contain any non standard stimulus measures which is why EUR/USD has remained relatively resilient despite lackluster economic data.

In North America today the calendar remains very quiet with only Pending homes sales on the docket. The FX markets will likely look to equities and bonds, but trading may remain subdued especially on this holiday shortened week. Still, USD/JPY will continue to be the key focus for FX with longs trying to run the stops at the 102.00 level as the day proceeds.

Boris Schlossberg
Managing Director

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