Yen crosses started the week higher as G20 ministers refused to call out Bank of Japan (BOJ) on their efforts to weaken the Yen. Though finance chiefs from across nations pledged not to “target exchange rates for competitive purposes”, individual finance chiefs refrained from commenting on BOJ and the Yen directly, with the closing statements from the G20 meeting ignoring Japan and their stimulus effects. Speculators went further in their short yen bets, believing Yen can weaken further without any international reprisal, erasing most of the gains Yen garnered in the previous 2 weeks.
Bulls of EUR/JPY will be glad that 123.0 manage to hold despite the bout of Yen strength last week, keeping current bullish momentum at play. However, the catalyst of the bounce from 123.0 is actually not due to JPY’s weakness, more more on EUR strength as ECB’s Weidmann said that the ECB will not be cutting rates to weaken the EUR, which is considered on the high side by various ECB members, not least Mario Draghi himself. Rate cut has been seen by many Central Bank watchers as the only practical route for Draghi to bring down the EUR, as other stimulus measures tend to bring EUR stronger due to confidence of investors in the Euro-Zone. Another route is for Draghi to start being bearish on the market, and speak ills of the Iberian region. That method becomes even less so unlikely as Draghi will lose credibility almost instantly ala BOJ circa 21st Century, as Draghi has been one of the persistent bulls about the Euro-Zone and Euro survivability, and at times the only lone voice that is still optimistic about the region. Being bearish about the Euro-Zone will certainly bring down EUR, but it will come at a great personal cost to Draghi, and at the same time bringing down asset prices in the Euro-Zone resulting in ECB missing the inflation target, which will render Draghi’s sacrifice wholly pointless and unnecessary.
Thanks to Weidmann (or no thanks to him if you are Draghi), EUR/JPY pushed higher towards the Kumo during early US trading hours last Friday. Prices managed to enter the Kumo but was rebuffed by the Kumo Top (Senkou Span B). Early trading this week allowed price to push beyond the current Kumo. Kumo twist that happened a few hours earlier also points direction to the upside. From a support/resistance point of view, trading above 125.0 opens possibility to test 128.0, which previous rally has failed to do so. Interim resistance can be found under 126.0, with price clearing the first hurdle of 125.50 which may provide some support against short-term downside moves.
Nikkei 225 gapped more than 150 points higher on open and currently we are trading 2.25% higher (9:48pm EST). Certainly the market is believing that more stimulus will be seen from BOJ/Abenomics in the near future with the next BOJ Governor coming in by April. Also, traders are fed with soundbites Today from BOJ’s Nishimura who said that the 2% target is achievable. Abe has also chipped in by saying that they are not manipulating markets, but merely “escaping deflation”, which is now ok by G20’s book.
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