USD/JPY Pressured as Abe Vacillates on Sales Tax

Market Drivers July 29, 2013
USD/JPY drops through 98.00 as Nikkei sinks
Abe – still uncertain about sales tax implementation
Nikkei -3.32% Europe -0.40%
Oil $104/bbl
Gold $1330/oz.

Europe and Asia:
JPY BOJ Kuroda Speaks at Research Institute of Japan
JPY Retail Trade 1.6% vs. 1.7%
GBP Net Consumer Credit 1.5B vs. 1.4B
GBP Mortgage Approvals 58K vs. 60K

North America:
USD Pending Home Sales 10:00

Its been a very slow session on the first trading day of the week with high beta currencies carving out very narrow ranges amidst a very quiet economic calendar with only USD/JPy making any meaningful moves as the pair came under further selling pressure in the wake of a 3% slide in the Nikkei.

USD/JPY sunk to a low of 97.62 as liquidation in the Nikkei triggered some risk aversion flows in Asian and early morning European trade. The pair continues to trade heavy after failing at the 100.00 level as investors remain cautious about Fed’s tapering plans as well as concerned about Japan’s efforts at fiscal reform.

Prime Minister Abe is rethinking the timetable for the implementation of a new sales tax due to take effect this fall. Although Finance Minister Taro Aso tried to reassure investors that plans to introduce the sales tax will proceed on schedule, Mr. Abe has expressed some reservations regarding the sales tax. He is concerned that a fresh levy on consumers could stifle the country’s nascent recovery before it has a chance to take hold.

Indeed the state of the Japanese consumer remains perilous with demand still in question as today’s Retail Trade data disappointed printing at 1.6% versus 1.7% eyed. Mr. Abe therefore has to walk a fine line between assuring investors that proper fiscal reforms will take place to mitigate the country’s massive 5 Trillion dollar debt, while at the same time he must pursue an aggressive expansionist policy in order to continue stimulating the economy. This conflict has caused a retrenchment among USD/JPY longs and the pair remains under pressure for the time being.

In North American trade the calendar remains quiet for the day with only the US Pending Homes on the docket. Trading continues to be dominated by technical rather than fundamental factors as EUR/USD continues to find resistance just ahead of the 1.3300 barrier. However, if the housing data shows any weakness, the barrier which so far has been defended successfully will likely fall as the day proceeds.

- See more at: http://www.forexnews.com/blog/2013/07/29/usdjpy-pressured-as-abe-vacillates-on-sales-tax/#sthash.ph6hrXVW.dpuf

Chart of the Day for July 29th, 2013 – EUR/USD

Prices took out resistance at 1.3259 marked by the 76.4% Fibonacci retracement. The bulls now aim to challenge the June 18 swing high at 1.3416. The 1.3259 mark has been recast as near-term support, with a reversal beneath that initially targeting the 61.8% Fib at 1.3162.

- See more at: http://www.forexnews.com/blog/2013/07/29/chart-of-the-day-for-july-29th-2013-eurusd/#sthash.aRTE2EBA.dpuf

Top Trade Idea for July 29th, 2013 – USD/JPY

A Setup to Short USDJPY

A week ago, the USDJPY popped above 100 as Shinzo Abe’s Liberal Democratic Party gained control of both houses of Japan’s parliament. If you focused on the press’ narrative, you’d assume the result would be a weaker yen, as internal opposition to Abenomics had all but faded away.

However, the charts told a different story. In the month prior to the LDP’s victory, the Nikkei gained about 12%, and USDJPY rallied from below 95 to above 100. The charts were telling us that the news was already priced in.

Just one week after the LDP’s victory, USDJPY was rocked overnight when the Nikkei 225 fell to a one-month low. The weakness in Japanese stocks was lead by exporters, which are sensitive to a strengthening yen. USDJPY also reached a one-month low overnight.

Technically, the USDJPY currency pair has broken down from an intraday (hourly) symmetrical triangle. The plunge from the 100.44 high to below 98 has been dramatic; that’s one reason why I’m expecting more downside. Should strength materialize, my plan is to short a USDJPY rally at the 98.60/98.70 area. That is the approximate location of the 38.2% Fibonacci retracement and the 50-hour moving average (highlighted yellow):

Place the stop above the rising blue trendline, which is currently located at 99.70. The target area is just above 95, the approximate location of a rising trendline that is visible on the daily chart. In the daily timeframe, the USDJPY remains within a larger symmetrical triangle:

Here’s Abe’s problem; the LDP’s political victory within Japan changes nothing outside of Japan. The loss of the International Monetary Fund’s (IMF) support is what really short-circuited the USDJPY rally. It wouldn’t matter if the LDP controlled every seat in parliament, Abe’s real problem lies beyond Japan’s borders.

About Ed Ponsi

Ed Ponsi has made over 100 appearances on CNBC, and has taught sold-out classes in New York, London, Singapore, Dubai, and other cities across the globe. He is well known his entertaining and informative analysis of the currency, commodities, and equities markets. Ed is the Managing Director of Barchetta Capital Management LLC, an NFA registered Commodity Trading Advisor.

An experienced professional trader, Ed has advised hedge funds, institutional traders and individuals. He has been profiled in magazines such as “Technical Analysis of Stocks and Commodities” and “Traders Journal”.

- See more at: http://www.forexnews.com/blog/2013/07/29/top-trade-idea-for-july-29th-2013-usdjpy/#sthash.JSUIwXme.dpuf

High Beta FX Falters as US Equities Sink

Market Drivers July 26, 2013
USD/JPY hits a two week low as 98.00 given on weak equities
Japanese CPI rises at fastest pace in 4 years
U of M better at 85.1 versus 84.0
Nikkei -2.97% Europe 0.40%
Oil $104.70/bbl
Gold $1330/oz.

Europe and Asia:
JPY National CPI 0.4% vs. 0.3%

North America:
USD U. of Michigan Confidence 85.1 vs. 84.0

High beta currencies came off the day’s high in mid morning North American trade today as US equities sold off into the weekend on what was otherwise a very uneventful, lazy Friday summer trading day. Both the euro and cable eased away from 1.3300 and 1.5400 respectively as risk aversion flows pushed the currencies lower, while Aussie failed at the 9300 level once again trading to a low of 9227 in morning US dealing.

The dollar however was significantly lower against the yen, with USD/JPY setting fresh two week lows as the pair tumbled through the 98.00 figure before finally finding a modicum of support. The greenback continues to suffer from the adjustment in perception as the market is becoming more and more convinced that the Fed will hold off on any tapering of QE for the foreseeable future.

On the economic front the calendar was nearly barren with only the final revision of the U of M data on the docket. The report showed a slight improvement from the original read to 85.versus 84.0 initially reported. The present conditions index however slipped slightly to 98.6 from 100.00 anticipated.

Next week the eco data schedule picks up markedly with a slew of economic and monetary reports due. In addition to the Fed meeting, the market will also see July’s NFP data as well ISM reports. The deluge of data should provide a much clearer picture of the business conditions on the ground and could either reinforce the view that QE will remain in place for the time being or change that perception quickly giving greenback another boost.

- See more at: http://www.forexnews.com/blog/2013/07/26/high-beta-fx-falters-as-us-equities-sink/#sthash.XGIOr9Cs.dpuf

Chart of the Day for July 26th, 2013 – EUR/USD

Prices invalidated a Harami candlestick pattern identified yesterday, pushing upward to take out resistance at 1.3259 marked by the 76.4% Fibonacci retracement. The bulls now aim to challenge the June 18 swing high at 1.3416. The 1.3259 mark has been recast as near-term support, with a reversal beneath that initially targeting the 61.8% Fib at 1.3162.

Dollar Drifts Lower in Quiet Trade

Market Drivers July 26, 2013
USD/JPY hits a two week low at 98.50 Nikkei drops -3%
Japanese CPI rises at fastest pace in 4 years
Nikkei -2.97% Europe 0.40%
Oil $104.70/bbl
Gold $1330/oz.

Europe and Asia:
JPY National CPI 0.4% vs. 0.3%

North America:
USD U. of Michigan Confidence 9:55

The dollar continued to drift lower and was particularly weak against the yen on the final trading day of the week in generally quiet summer trade. The Nikkei dropped by nearly -3% and spurred further selling in USD/JPY which tumbled to a low of 98.50 in late session Asian trade.

The economic calendar was extremely barren today with only the Japanese inflation data on the docket, but that report did show that prices rose at the fastest pace in 4 years suggesting that Abenomics may be starting to gain traction.

Japan’s core measure of inflation – the National CPI ex- fresh food rose to 0.4% versus 0.3% eyed while the Tokyo only figures also showed a rise of 0.3% versus 0.2% prior. Some analysts now predict that Japan’s inflation may rise by 0.5% in July and August as price increases gain momentum.

If price levels do rise, PM Abe would have succeeded in finally breaking the deflationary grip which enveloped Japan for the better part of the past two decades. That dynamic if it were to continue should help drive nominal wages and growth higher in the next several quarters.

The news however did not help USD/JPY which continued to drift lower after it broke below the 99.00 level at the start of the Asian session trade. The greenback has been under severe downward pressure as currency markets rethink the prospect of near term Fed tapers. Yesterday’s article by John Hilsenrath of the Wall Street Journal which suggested that the Fed will continue with its $85 Billion/month buying program and may revise its guidance numbers lower, only served to fuel suspicions that the Fed is unlikely to tighten any time soon.

The dollar therefore remains under pressure and could see further weakness, testing the 1.3300 level in EUR/USD 1.5450 in GBP/USD and possibly 98.00 in USD/JPY as the day progress, especially if the final reading of the U of M consumer survey is revised to the downside.

- See more at: http://www.forexnews.com/blog/2013/07/26/dollar-drifts-lower-in-quiet-trade/#sthash.iEHiX8Is.dpuf