Forex: USD/JPY Soars Above ¥93 After BoJ Governor Steps Down
ASIA/EUROPE FOREX NEWS WRAP
The Bank of Japan is about to get a lot more dovish, and sooner than previously thought. Earlier today, Masaaki Shirakawa announced that he would retire from his position as BoJ Governor on March 19, about one month earlier than previously anticipated. While it does not appear to be a political move that motivated Mr. Shirakawa to abandon his post – Prime Minister Shinzo Abe has been aggressive in his calls for a more sympathetic BoJ governor, but has never said he would replace Mr. Shirakawa early – it is clear that only those with the most dovish tendencies will dictate policy.
The Yen has reacted as one would expect, weakening across the board as the timeline for additional easing has been theoretically accelerated, now that Mr. Shirakawa will be ‘out of the way’ sooner rather than later. Despite implementing a +2.0% yearly inflation target and promising to begin a ¥13 trillion/month ($145 billion) open-ended easing program in January 2014, there are still a litany of other policies that could be implemented, in the BoJ’s effort to stoke growth and inflation. The BoJ could (measures that aren’t priced in): accelerating the timeline for open-ended asset purchases; increasing the size of the asset purchases; extending the maturity of bonds under its current asset purchase program; cutting the main interest rate from +0.10% to 0.00% or even negative rates; or cut the interest paid on excess reserves (IOER), to provoke banks into lending further (an effort to stimulate inflation).
The Yen’s weakness has lifted the USDJPY above ¥93 and the EURJPY back above ¥126 – in fact, the EURJPY has rallied nearly +200-pips from the daily low already, just over the past few hours alone. Italian and Spanish political issues have come back into the foreground, which portends to Euro weakness; however, this is entirely dependent on what happens with yields.
Taking a look at European credit, peripheral yields have steadied, allowing the Euro to rebound on Tuesday. The Italian 2-year note yield has decreased to 1.585% (-12.2-bps) while the Spanish 2-year note yield has decreased to 2.735% (-8.8-bps). Likewise, the Italian 10-year note yield has decreased to 4.427% (-3.2-bps) while the Spanish 10-year note yield has decreased to 5.360% (-4.6-bps); lower yields imply higher prices.
RELATIVE PERFORMANCE (versus USD): 11:50 GMT
Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): +0.29% (+0.61% past 5-days)
See the DailyFX Economic Calendar for a full list, timetable, and consensus forecasts for upcoming economic indicators.
TECHNICAL ANALYSIS OUTLOOK
EURUSD: No change: “Consolidation occurring after overshoot towards 1.3700; with the daily RSI uptrend breaking, a pullback towards 1.3500 should not be ruled out. I maintain: with the daily RSI well into overbought territory, a pullback would be deemed healthy. Dips into 1.3500 are deemed constructive. Support is 1.3615/20 (weekly R2), 1.3540 (weekly R1), and 1.3500. Resistance is 1.3635/60 and 1.3755/85 (weekly R3, monthly R1).”
USDJPY: No change: “Further bullish price action as US Treasury yields strengthen and speculation over BoJ policy arises again. Resistance comes in at 92.00/05 (breaking now) (weekly R1), 93.15/20 (weekly R2), and 93.45/50 (monthly R3). Support comes in at 91.00 and 90.00/10 (weekly pivot, monthly R2).”
GBPUSD: No change: “The pair is holding the 61.8% Fibonacci retracement from the June low to January high, but I maintain: looking to sell rallies in the pair as significant RSI divergence exists. Failure at the former November swings lows at 1.5825 (and subsequently, the 200-DMA at 1.5890) underscores how weak the pair is right now. A break below 1.5675 eyes a move towards 1.5500, and ultimately, 1.5265/70, the June low. Resistance comes in at 1.5825 and 1.5885/90. Support is 1.5675 and 1.5580 (monthly S1).”
AUDUSD:No change: “The pair continues to range although it has showed signs of cracking, with both the ascending trendline off of the June low and the October low having been breached, as well as the ascending TL off of the June low and the December low. Accordingly, a weekly close below 1.0460 could signal a deeper retracement towards 1.0350/400, before a greater breakdown towards parity. Support comes in at 1.03800/400 (last week’s low), 1.0340/50 (December low), and 1.0140/50 (October low). Resistance is 1.0460/70 (ascending TL off of the June and December lows, 50-EMA) and 1.0500/15.”
S&P 500: Tuesday I said: “as indicated on the charts the past weeks, noting “nearing the top 1505/1512” – the top was 1504.6. If this breaks, 1520 is in sight.” Indeed, the irrational exuberance has continued, bringing topline Bearish Rising Wedge resistance in focus at 1512/15; the December 2007 highs of 1520/24 could be reached on an overshoot. Bottom line: I’m expecting a crash in the S&P 500 unless volumes accelerate rapidly, given the disconnect from reality.
GOLD: The past few weeks I’ve maintained: "When considering the move off of the September highs, a measured A-B=C-D (as expressed on the Daily) suggests that a bottom could be in place at [1630/40].” The rebound has ensued, with the alternative safe haven rallying up to 1690 today. A daily close above 1700 points towards 1722/25 and 1755. Support is 1663 (200-EMA) and 1640/45.
--- Written by Christopher Vecchio, Currency Analyst
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