JPY stronger across the board this morning

Tue, Sep 1 2009, 09:34 GMT
by Per-Erik Karlsson

Market comment

JPY stronger across the board this morning as the Democratic Party of Japan won the Japanese election over the weekend. We don’t expect this outcome to really give a prolonged support for the JPY, as the weak fundamentals should limit the JPY strength. Interesting to note that our risk appetite parameter EURJPY still holding above key 132 support. As long as this level holds there is potential for further upside. Cleary the correlation EURJPY and S&P has been less evident over the last week then previous months. Seems like a potential shift of focus in the FX market, moving away from the risk appetite theme that has been the dominant force this year to a theme of interest rate differentials. We are not convinced that this shift will remain in place, but at the moment it seems to be the main driver as in fact JPY has several other currencies that can take over its traditional stance as carry trade currency. USD is now cheaper to borrow than the JPY, first time in 16 years (see article link below). Looking at the S&P 500 futures chart we see a couple of weakness signals and a wide spread down bar would be the confirmation for a move lower. We continue to favor buying VIX on dips for a move higher above 30 once traders return from the summer holiday. Still a lot of traders that are looking for a correction lower in equities once summer holiday is over and we agree. GBP continues to struggle and look weak after it broke 0.8630 vs. Euro. Will be very interesting to see how the inflation readings will look over the next few months and would not be surprised to see inflation creep up. Saw some data from St. Louis Fed pointing to a rapid rise in the monetary base last week, rising from just below $1700 billion to $1780 billion. That cannot be a good thing in our mind,

Some interesting news stories:

Technical’s

Euro: Key support remains at 1.40, with minor support at 1.4046 (weekly low). Still expect 1.40 to hold as long as S&P stays above 970. See resistance at 1.4350 and 1.4450 today.

Cable: Technically still long term bullish potential above 1.60. Resistance at 1.6593 and 1.67 today.

USDJPY: Weak below 95 with support down at 93.20 and 91.74. Favor weaker JPY in the longer run, but as long as it trades below 95 we favor staying short.

Swissy: Range bound with support down at 1.0540 with resistance up at 1.0910. Favor range trading in this mentioned range until proven wrong.

AUDUSD: Key resistance at 0.8550 and key support down at 0.8150 level. Bullish above0. 8150 basically. A daily close below 0.8150 would be a bearish signal.

USDCAD: Choppy price action as risk appetite and crude oil seems to drive price action. Technically weak below the falling trend line going back to 9th of March, coming in at 1.1110 today.

EURJPY: Strong support down at the 132 to 133 support zone. Looks bullish as long as S&P 500 stays above 970 and key support in the EURJPY at 132.

GBPJPY: GBP being sold across the board as EURGBP broke above 0.8630 last Friday. Support down at 150.89 (7th of May high and previous break out level)

AUDJPY: Key pivot point is 76.65 and basically medium term bullish outlook intact above this level.

Our outlook

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