Has USD/JPY Topped Out?

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Market Drivers for Feb. 8, 2013
Yen crosses crushed on Aso comments
Australian dollar rebounds after Chinese Trade data
Nikkei -1.80% Europe 0.44%
Oil $96./bbl
Gold $1671/oz.

Europe and Asia:
CNY Trade Balance 29.2B vs. 24.3B
EUR German Trade Balance 16.8B vs. 13.7B

North America:
CAD Employment change 8:30

It’s been a volatile night in yen crosses on the final trading day of the week, while the price action in other majors has been relatively subdued. Comments by Japanese Finance Minister Taro Aso sparked a fast and furious sell off in USD/JPY and yen crosses as traders booked their profits and dumped the pair ahead of the long Tokyo weekend. Speaking in Japanese Parliament Mr. Aso said, “The yen’s sudden move from 78 or 79 to 90 was not something we anticipated.”

That one sentence was enough to trigger a massive selloff in USD/JPY which quickly tumbled more than 150 points off the session highs to hit a low of 92.16 before rebounding to 92.50 by mid-morning european trade. Mr. Aso’s comments seem disingenuous at best since Prime Minister Abe specifically campaigned on raising the USD/JPY rate to 90.00. However, now that the pair has exceeded that target and has weakened further to hit 94.00 this week, Japanese fiscal authorities are clearly concerned with the pace of depreciation.

While Japanese officials definitely want to see further yen depreciation, the runaway rally that we’ve seen over the past few weeks may be causing both political and economic risks as the country now comes under strong criticism from its Asian neighbors while the market volatility creates hedging problems for its export driven corporate sector.

Therefore today’s statement by Mr. Aso was a clear calculated move to temper some of the investor flows into USD/JPY and allow the pair to consolidate around the 90.00-94.00 region while the Abe administration looks for a BOJ nominee and continues to assert it power over the monetary policy making apparatus.

With the weekend ahead, and serious damage done on the technical level. USD/JPY may be vulnerable to further sell-off in North American trade as shorts try to target the 92.00 level.

Meanwhile the euro continued to lick its wounds after a massive selloff yesterday in the wake of Mario Draghi’s press conference at which he made opaque comments regarding the strength of the currency. While the Germans continue to dismiss any argument that the euro is too strong, the French are much more concerned about the strength of the pair. If the French now move over to the periphery camp along with the Spaniards and the Italians, seeking a more accomodative monetary policy in order to weaken the unit, the Germans may see their power to influence the ECB begin to erode. The euro continues to trade in a narrow range with 1.3450 which was former support now becoming a key resistance point.

The Aussie on the other hand, has seen a strong rebound off the lows. The pair fell to a fresh yearly low of 1.0255 in early Asian dealing on the back of a dovish RBA Monetary report, but the release of Chinese Trade data which saw exports skyrocket by 25% boosted sentiment and the pair has been in a short covering rally ever since. However, much like euro any bounce in the Aussie is likely to be capped as sentiment has clearly shifted and trader are likely to book more profits ahead of the weekend.

Boris Schlossberg
Managing Director

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