USD/JPY Blows Past 105.00

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Market Drivers July 14, 2016

USD/JPY takes out 105.00
AU Employment shows full time gains
Nikkei 0.95% Dax 1.30%
Oil $45/bbl
Gold $1326/oz.

Europe and Asia:
AUD Employment 7.9K vs. 10K

North America:
GBP BOE Rate Decision 7:00
USD PPI 8:30
USD Jobless Claims 8:30

USD/JPY blew past the 105.00 figure in late Asian trade today as talk of more easing from Japanese officials spurred a rally in the pair that took it higher by nearly big figures off session lows.

The run in the pair was spurred by comments from advisor to Japanese PM Abe, Mr. Honda who told Bloomberg that he discussed the possibility of perpetual bonds with Former Fed Chairman Ben Bernanke. There seems to have been some confusion as the terminology as Mr. Honda thought that this is what Mr. Bernanke meant by helicopter money, but that concept actually refers to direct credit to consumers banking accounts.

In either case Mr. Bernanke reaffirmed that this was good idea and Mr. Honda noted yesterday that he was in favor of further fiscal and monetary stimulus. All of the rhetoric from Tokyo helped to finally push the pair through the psychologically key 105.00 level and momentum today could send it to a test of 106.00.

The rally in USD/JPY has been stunning, catching many of the shorts off guard as it has been driven strictly by rhetoric rather than action. This makes the USD/JPY vulnerable to a sell off should Mr. Abe and Mr. Kuroda fail to follow through on stimulus, but given the fact that Japanese authorities are clearly concerned about keeping the exchange rate above the parity mark, some fresh policy initiative is likely.

In other news the AU employment data printed generally in line coming in at 7.9K versus 10.0K forecast. Although the data not completely bullish, the massive jump in full time employment to 38.4K new jobs is a welcome sign for AU policymakers and provides little reason for any further rate cuts by the RBA just yet. The Aussie popped to .7645 in the aftermath of the report and remains well bid in European dealing. The pair faces a more serious level of resistance at the .7700 level but could make a run for it in North American trade.

In North America today, the early session will be dominated by the BOE rate decision which is unlikely to show any change for the time being. Governor Carney was clear in his recent testimony that the central bank will wait for a full assessment of condition in August before deciding on a course of action. Given the political will to move ahead with Brexit, it is almost certain that BOE would have to lower rates further, but today’s nonevent could offer a possibility of a short covering rally and cable was already trading more than 140 points off session lows ahead of the announcement.

Boris Schlossberg
Managing Director

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