Can USD/JPY Finally Break 100.00?

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Market Drivers for April 22nd, 2013
USD/JPY gaps higher post G-20 but stalls ahead of 100.00
High beta FX struggles near lows of the day
Europe 0.61% Nikkei 1.89%
Oil $87.97/bbl
Gold $1421/oz.

Europe and Asia:
NZD Credit Card Spending
CHF Real Estate Index Family Homes

North America:
USD Chicago Fed Nat Activity Index 6:30
USD Existing Home Sales 8:00

Currency markets were relatively quiet on the first trading day of the week, with high beta FX marking time near the session lows while USD/JPY was well bid but remained capped ahead of the key 100.00 mark. The pair had gapped higher on the Asian open amidst enthusiasm that the G-20 meeting did not rebuke Japan for it ultra aggressive monetary policy.

The USD/JPY bulls took the G-20 silence on the issue as a sign of tacit approval and pushed the pair to a high of 99.85, but it remained just shy of the yearly highs at 99.95. USD/JPY has failed to break the 100.00 barrier three time already and if it fails to do so again the profit taking rally could send it to retest of recent lows near the 95.80 level. However, there is good reason to believe that this time the pair may breach the key barrier of 100.00 as the week proceeds.

One focus of the market is the investment allocation plans of Japan’s large insurance companies. Over the weekend, the Wall Street Journal noted that Japan’s insurance sector which holds more than 3 Trillion dollars in assets may begin to shift part of its portfolios into foreign bonds as they seek higher returns than the ultra low yielding Japanese Government bonds. With the new fiscal year starting April 1, even a 1% shift in the composition of those assets could produce significant capital outflows and drive USD/JPY higher as result.

Meanwhile the high-beta FX spent a listless night in narrow ranges with EUR/USD testing the 1.3050 support while Aussie probed fresh monthly lows near the 1,0250 level. The EUR/USD failed to break out above the 1.3100 level on Friday despite the comments from ECB officials that no imminent rate cut was coming. The market appears convinced that the ECB will need to do something relatively quickly in order to stimulate demand in the Eurozone. For now, however the EUR/USD continues to hold the key 1.3000 mark and that support suggests that the pair remains relatively bid for the time being, but if that is given that would indicate that a steeper selloff may be in the offing for the single currency.

In North America today the eco calendar is relatively barren with only Existing Home Sales on the docket. The market anticipates a bit of a better reading at 5.02M versus 4.98M the period prior and if the data could beat the consensus it could provide the trigger for USD/JPY to take out 100.00 level as the day progresses. One of the reasons for USD/JPY’s hesitance to cross the century mark has been the nascent concerns about the slowdown in the US economy. However, if the housing sector shows that demand remains relatively robust, it would allay some of those fears and possibly help to propel USD/JPY through 100.00.

Boris Schlossberg
Managing Director

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