Profit Taking in Yen Crosses Starts the Week in FX

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After a massive rally in risk during the holiday shortened week that saw volatility in equities get crushed, the market started the full working week of the New Year with a decidedly bearish tone as profit taking dominated Asian and early European trade.

The yen crosses initially opened strong in early Asian trade but soon came under selling pressure when Tokyo opened for trade. USD/JPY dipped to test the post NFP lows of 87.65 while EUR/JPY sold off all the way from 115.40 to 114.20 taking EUR/USD down with it as traders started to book profits on their positions.

One reason for the mild selloff in the yen pairs was the more tempered rhetoric from Japanese officials. Finance Minister Aso noted that the government “does not necessarily have to conclude a policy accord with BOJ” adding that, “As long as there’s talk (on monetary policy) at the council meetings, there’s no need to issue a policy accord (with the BOJ)”. The more conciliatory tone suggested that the Abe government may ease its assault on BOJ policy, prompting traders to conclude that Japanese officials may be satisfied with yen levels for now.

Adding to the idea that yen may have reached its targeting weakness was the head of Japanese business lobby Hiromasa Yonekura who stated that the current level of USD/JPY at 88.00 was acceptable.

With no major economic releases in European session today currencies will likely continue to consolidate for the rest of the day but if equities begin to weaken the downward pressure on yen pairs may accelerate with USD/JPY possibly testing 87.50 EUR/JPY probing the 114.00 level and EUR/USD likely dragged towards the key 1.3000 figure as a results of further profit taking.

Boris Schlossberg
Managing Director

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