Last week’s G-20 meeting proved positive for the USDJPY, and with Japanese companies now looking to shift assets into higher-yielding foreign bonds, the pair may now have what it takes to break the key 100 level.
Currency markets have been relatively quiet on the first trading day of the week, with high-beta FX making time near the session lows, while USDJPY 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 USDJPY 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. USDJPY has failed to break the 100.00 barrier three times already, and if it fails to do so again, the profit-taking rally could send it to a 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 progresses.
See related: USD/JPY: 3 Must-Have Catalysts for a Break of 100
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 portfolio into foreign bonds in search of 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 USDJPY higher as a result.
EUR/USD Clings to Key Support
Meanwhile, high-beta FX spent a listless night in narrow ranges with EURUSD testing the 1.3050 support while AUDUSD probed fresh monthly lows near the 1.0250 level. The EURUSD failed to break out above the 1.3100 level on Friday despite comments from European Central Bank (ECB) officials that no rate cut was imminent.
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 EURUSD continues to hold the key 1.3000 mark, and that support suggests that the pair remains relatively bid for the time being. If that support level is broken, however, it would indicate that a steeper selloff may be in the offing for the single currency.
US Housing Data Could Boost USD/JPY
In North America today, the economic calendar is relatively barren with only existing home sales on the docket. The market anticipates a bit better reading at 5.02 million versus 4.98 million the period prior, and if the data could beat the consensus, it could provide the trigger for USDJPY to take out 100.00 level as the day progresses.
One of the reasons for USDJPY'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 USDJPY through 100.00.
By Boris Schlossberg of BK Asset Management