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Forex Analysis: Yen to Rebound After Japan Election, Euro Eyes Draghi

Forex Analysis: Yen to Rebound After Japan Election, Euro Eyes Draghi

2012-12-17 09:24:00
Ilya Spivak, Head Strategist, APAC
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The Yen has scope to rebound on profit-taking after Japan’s general election. The Euro looks to remarks from ECB President Draghi for forthcoming stimulus clues.

Talking Points

  • Japanese Yen May Reverse Correct Higher After Election Outcome
  • Australian, New Zealand Dollars Follow Asian Stock Exchanges Lower
  • Euro Looks to Mario Draghi Speech for ECB Stimulus Clues in 2013

The Japanese Yen gapped sharply lower at the open of the trading week after Shinzo Abe reclaimed the position of prime minister as his LDP party put in a commanding at the weekend’s general election. Abe has promised to push the Bank of Japan toward open-ended monetary stimulus in a bid to end deflation and achieve a 2 percent inflation target.

Forex markets widely expected an Abe victory. In fact, the Yen’s sharp selloff since mid-November can be directly linked to building expectations of precisely the election outcome now at hand. From here, the Japanese unit may now have room to correct higher. With the voting over, the speculation that drove the selloff has been validated, leaving Yen bears without a clear-cut catalyst to continue pushing prices lower until the LDP’s efforts can be evaluated.

In the meantime, the door appears open for profit-taking. Indeed, speculative net short Yen futures positioning hit a record high last week according to data from the CFTC, suggesting there is ample room for sellers to unwind bets and take profits off the table before the next leg of Yen selling commences. The proximity of the calendar year end may reinforce this dynamic.

The Australian and New Zealand Dollars fell as Asian stocks turned lower, denting demand for the risk-linked currencies. The MSCI Asia Pacific regional benchmark equity index slid 0.2 percent. S&P 500 index futures are pointing firmly higher however, hinting the risk-off mood may not prove lasting.

A quiet economic calendar puts the spotlight on ECB President Mario Draghi, who is scheduled to give his quarterly statement to the European Parliament Committee on Economic and Monetary Affairs. Greece is back on the backburner and falling yields in Spain and Italy are helping to mend the policy transmission failures that the ECB cited as the reason to create its OMT program. This opens the door for the central bank to refocus on growth, and traders will look to Draghi’s comments for any signs of stimulus on tap in 2013.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

21:00

NZD

Westpac NZ Consumer Confidence (4Q)

111.1

-

102.5

21:30

NZD

Performance Services Index (NOV)

54.1

-

58.1 (R+)

0:01

GBP

Rightmove House Prices (MoM) (DEC)

-3.3%

-

-2.6%

0:01

GBP

Rightmove House Prices (YoY) (DEC)

1.4%

-

2.0%

6:00

JPY

Machine Tool Orders (YoY) (NOV F)

-

-

-20.7%

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

9:00

EUR

Trade Balance Total (€) (OCT)

2452M (A)

409M

Low

9:00

EUR

Trade Balance EU (€) (OCT)

981M (A)

1004M

Low

10:00

EUR

Euro-Zone Labour Costs (YoY) (3Q)

-

1.6%

Low

10:00

EUR

Euro-zone Trade Balance (OCT)

11.0B

9.8B

Low

10:00

EUR

Euro-zone Trade Balance s.a. (OCT)

11.0B

11.3B

Low

14:00

EUR

ECB's Draghi Speaks to EU Parliament Panel

-

-

Medium

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3096

1.3202

GBPUSD

1.6126

1.6226

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya, e-mail ispivak@dailyfx.com. Follow Ilya on Twitter at @IlyaSpivak

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