It has been a busy overnight ahead of the Thanksgiving day holiday in
the U.S. USD/JPY has propelled itself through the 82.00 level, while
the EUR has tumbled once again as European Union Finance Ministers failed to agree on a debt reduction package for Greece.
Let’s start in Japan. The LDP candidate Shinzo Abe made further
comments as he answered comments made by Bank of Japan governor
Shirakawa. Abe stated he wanted the government to buy bonds from the
market and wants to see inflation at the 2-3 percent level. He is also
looking to increase military spending as well as cut welfare payments by
10% and reduce corporate tax rates. Abe, who is expected to win
election on December 16, has also been advocating further easing by the
BOJ. After falling to a low of 81.70 overnight, the USD/JPY reversed
its field and has risen as high as 82.25 overnight. Technical analysts
say the currency pair could test as high as 82.70. Support at the
moment is at the 81.95 and 81.70 levels, while resistance appears at
82.40 and 82.65.
The EUR fell below the 1.2800 level finally settling at 1.2735 after
Eurozone finance ministers failed to agree on a debt-reduction package
for Greece. There was also no approval of the next tranche of bailouts,
which has been on hold since June. The meetings lasted almost 12 hours
as a key issue remains the IMF’s reluctance to give Greece an extra two
years to reach their deficit target. The IMF wants this target reached
by 2020, while the Finance Ministers are willing to wait until 2022.
The EUR has come back a bit as German Chancellor Merkel has made
various comments as to how to come to a compromise, but the selling
pressure remains. Analysts are now looking at a longer term target of
1.2660, if there is no deal in the near future. Suffice to say, an
agreement would see the EUR move back towards the 1.2820 level. As for
that aid payment to Greece that has been on hold since June, the next
meeting for the finance ministers is November 26, so it will be held at
least until then. The ebb and flow of the EUR is certain to be
influenced by Euro finance minister comments as well as comments from
European leaders.
The British Pound moved higher after the release of Bank of England
minutes showed the MPC voted 9-0 to keep rates at 0.5% and 8-1 to keep
the QE target at GBP 375 billion. GBP rallied to 1.5930 before settling
back into the “1.59 teens”.
Fed Chairman Ben Bernanke spoke at the New York Economic Club
yesterday and said that “accumulating evidence does appear consistent
with the financial crisis and the associated recession having reduced
the potential growth rate of our economy somewhat during the past few
years”. In other words, we are not growing as an economy as fast as he
would have liked. He also said the Fed lacks measures to alleviate the
impacts of the fiscal cliff. He warned that “Congress and the
administration will need to protect the economy from the full brunt of
the severe fiscal tightening at the beginning of next year” as the
fiscal cliff would “pose a substantial threat to the recovery” and “a
fiscal shock of that size would send the economy toppling back into
recession”. These comments were not taken kindly by the equity markets
and his remarks made the DOW tumble. As far the economic outlook was
concerned, Chairman Bernanke remained cautious over employment and the
housing market. He stated that “the unemployment rate is still well
above both its level prior to the onset of the recession and the level
that my colleagues and I think can be sustained once a full recovery has
been achieved”.
Once again liquidity is expected to be a concern as traders look for an early release ahead of the Thanksgiving holiday.
Expect the ranges to remain intact today, with downward pressure on the EUR to remain.