While quiet pre-holiday trading and delays on Greek aid disbursement has caused most of the major currencies to consolidate, one currency pair is on the move. USD/JPY soared to a fresh 7 month high against the U.S. dollar this morning, extending a rally that has now lasted for 6 straight trading days. With the latest move, the currency pair is on track to close higher for the first time in 6 years. As long as USD/JPY ends the year above 76.90, this would be the first positive year for USD/JPY since 2006 and this time, the rally has been caused almost entirely by Japanese and not U.S. fundamentals. Aside from the political mess in Japan, the countryâ€™s trade deficit did not narrow as much as most economists had anticipated in the month of October. Between a net trade and current account deficit, more money is now flowing out of Japan, which is extremely negative for the Yen. In fact, it is so negative that it completely overshadowed pre-positioning for the U.S. fiscal cliff. USD/JPY even shrugged off another week of above 400k jobless claims. Claims dropped to 410k in the week of November 17th, down from an upwardly revised 451k. The final University of Michigan Consumer Confidence report and leading indicators will be released later this morning and we donâ€™t expect either of these numbers to pose much threat to the USD/JPY rally. At this point, there is no major resistance in USD/JPY until 83, a level that capped gains back in late March, early April. Above that, the real resistance will be at the 2012 high of 84.18.
Meanwhile with euro area Finance Ministers failing to reach an agreement on aid disbursement for Greece last night, investors are back in wait and see mode. By now, everyone should know that the Eurogroup plans to reconvene on Monday to work out the â€œtechnical details of the package.â€ The price action in the EUR/USD suggests that investors remain hopeful because whatâ€™s a few more days when we have waited months for a deal. Also, the Germans have gone out of their way to reassure everyone that progress is being made and the more conciliatory tone from Merkel is being received positively. The Chancellor said Greeceâ€™s financing hole could be filled through the combination of lower interest rates and more EFSF funding. She was optimistic that a deal could be reached on Monday and said the good news is that the Troika believes Greece is fulfilling its obligations. Finance Minister Schaeuble was a bit more direct. He indicated that Greece could receive up to EUR10 billion in extra EFSF funds to buyback bonds and that their current aid could re-paid in steps or tranches.
Trading should grind to a halt after the European close as many U.S. dealers take off early for the Thanksgiving Day holiday.