One of the few currency pairs that has not range traded and is in a persistent trend is USD/JPY. The victory by the Democratic Party of Japan has driven the Japanese Yen higher against all of the major currencies. However, it is not only the election result that has weighed on USD/JPY. It has recently become cheaper to fund with the U.S. dollar than the Japanese Yen (through the 3 month LIBOR), an occurrence that we haven’t seen since 1993. However the first time this occurred in that cycle was actually in 1990 and the unique dynamic foreshadowed a 40 percent sell-off in the currency pair. The chance of USD/JPY falling 40 percent at this point is low, but the chance of USD/JPY breaking its 6 month low of 91.75 is high because unlike the EUR/USD, USD/JPY has not been immune to weakness in Chinese equities. Fundamentally, Japanese data has also been improving with retail sales increasing in the month of July and manufacturing activity accelerating. Risk appetite is still the primary driver of the currency pair but if U.S. equities refuse to rally this week, the pressure could heat up on USD/JPY. FX360.COM Kathy Lien.
May The Force Be With You.
Eddie Azron.