Will USD/JPY Hit 100.00 This Week?

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Market Drivers April 8, 2013
USD/JPY takes out 99.00 as rally relentless
Euro remains well bid as 1.3000 recovered despite complications with Portugal
Europe 0.46% Nikkei 2.80%
Oil $93.30/bbl
Gold $1576/oz.

Europe and Asia:
AUD AiG Performance of Construction Index 39.0 vs. 45.6
JPY Trade Balance 00T vs. 0.46T
JPY Eco Watchers Survey: Current 57.3 vs. 56.3
EUR German Industrial Production n/a
EUR Euro-Zone Sentix Investor Confidence -17.3 vs. -12.6

North America:
USD Fed Bernanke Speaks at Atlanta Fed Conference 17:15
CAD Bank of Canada Senior Loan Officer Survey 8:30
CAD Business Outlook Future Sales 8:30

USD/JPY set fresh yearly records in Asian and early European trade today and was within striking distance of the 100.00 mark – a level it hasn’t seen in four years as the rally in the pair continued unabated after last week’s historic BOJ meeting that set the country’s monetary policy on a highly accommodative course.

USD/JPY burst out of the gate at the start of Asian open today gaping higher and did not turn back, hitting 99.00 in morning European dealing before pausing for some profit taking. The pair has now gained more than 400 points off the Friday’s lows as investors shook off the weak US NFP report and continued to sell yen on assumption that the BOJ will flood the market with liquidity as it promised.

With the pair only 100 points away from the psychologically key 100.00 mark the pressure to run the stops at that level will be immense this week, and barring any sudden spike in risk aversion the pair is likely to roll through that level as momentum remains relentless for the time being.

The weaker yen is also starting to have a positive impact on Japanese consumer sentiment. The latest results from the Eco Watchers survey showed an increase to 57.3 from 53.2 the period prior. This was the fifth monthly consecutive gain in the index.

The Eco Watchers survey is one of our most favorite indicators of demand from Japan because it measures true “man in the street” sentiment by polling barbers, taxi drivers and restaurant workers and provides the clearest reading on consumer behavior in the Land of the Rising Sun. The fact that it has improved markedly since PM Abe’s aggressive policy to reverse deflation should provide encouragement to Japanese officials to pursue their unconventional policy actions.

With little eco news on the calendar in both Europe and North America, trading in EURUSD has been driven primarily by the flows on the crosses. EUR/JPY rose to within a whisker of the 129.00 level and lifted EURUSD above the 1.3000 level in the process. The pair still faces serious resistance at the 1.3050 level which remains the unfilled gap from more than a month ago, but it has proven remarkably resilient given the dour economic and political picture in the Eurozone. Even the latest news from Portugal where court has struck down some austerity provisions as unconstitutional, has not had much of a negative impact on trade.

With US eco calendar barren today trading is likely to be momentum driven in North American session. If US can continue to push the USD/JPY pair through the 99.00 barrier, the key 100.00 mark will quickly come into view. If it fails however, sharp profit taking could trigger a quick reversal of the overnight gains as volatility continues to expand in the pair.

Boris Schlossberg
Managing Director

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