Yen succumbs to second wave of selling
The Japanese Yen continued to break free from its safe-haven status overnight, succumbing to a second wave of selling ahead of crucial elections in December. The Yen fell to fresh 7 month lows against the greenback and continued to post similar multi-month lows against key counterparts the Euro, sterling and Aussie, after top leadership contender of the opposition, Shenzo Abe, renewed calls to spur inflation and weaken the Yen in an effort to resurrect Japan’s ailing economy. Abe has recently made clear his intentions to counter Japan’s deflationary spiral by unleashing “unlimited” quantitative easing measures, à la, the US Federal Reserve. The former Prime Minister and the leader of the Liberal Democratic Party, Abe is currently odds on favorite to take the reins after the December 16 elections.
It’s apparent the yen is undergoing a structural change in its appeal as a safe-haven unit, given its extremely high debt, ageing population and importantly, it’s declining status as an export powerhouse. While the spotlight has been on Japan’s less than inspiring economic health for some time, the threat of a new government unleashing a barrage of monetary easing initiatives has been the primary catalysts for this new round of selling, which ironically provides a critical boost to Japans export-contingent economy.
From a technical perspective, the USDJPY pair peaked above the 23.6 Fibonacci retracement level set from the February to March rally, which we perceive as backing up the fundamental view of bullish momentum for the pair. While a logical target may be the March high of just above Y84, it’s likely a period of consolidation will be needed to safely sustain these comparatively lofty heights. Although a structural change the Yen may materialize, the currency still retains its safe-haven credentials, in turn, susceptible to intermittent bouts of strengths should fiscal cliff concerns began to infiltrate market psyche once again.
Europe’s elite fail to deliver on Greece
Divisions between Greece’s lenders remained a negative distraction after talks failed to bridge the gap needed to free-up much needed bailout funds. Euro-group finance ministers, the IMF and the ECB are attempting to bridge the impasse on the time frame Athens has to reduce their budget deficit. Last week the IMF’s Christine Lagarde raised concerns over the Euro-group decision to extend Greece’s budget targets by two-years, giving Athens until 2022 to reduce their debt to GDP ratio to 120 percent. A deal is now expected to be reached at a meeting scheduled for November 26, which will pave the way for at least 31.5 billion euro’s of bailout funds with reports additional funds just over 43 billion euro’s may be unlocked. The Euro reclaimed lost ground after news of delays, finding support above $US1.28-figure once again, with the delays considered a technicality rather than a material threat to Greece receiving its next bailout tranche. At the time of writing the Euro is buying $US1.2820.
Aussie dollar hits the wall; China PMI in focus
The kiwi led declines across the commodity bloc overnight, with the Aussie not far behind. The Australian dollar has now settled comfortably in the 103-handle to lows of 103.37 US cents, nevertheless, residual support from stronger US equities capped the downside. From here the focus will be back on China, with HSBC’s gauge of manufacturing PMI on the docket at 12.45 AEDT. The equation for the local unit is fairly simple, with any perceived pick-up in manufacturing activity into expansion territory beyond the index level of ‘50’, likely to encourage buying activity, in turn a break to the upside of 104 US cents is probable. Nevertheless, the disappointment risk is high, with a less than encouraging result likely to pull the local unit deeper into the 103-handle. At the time of writing the Australian dollar is buying 103.62 US cents.