Yen positioning light ahead of the BoJ

The main theme in FX markets was the USD continuing to lose ground to the majors as the government shutdown continues.

- US dollar continue to give up ground

- BoJ not expected to act

- Risk currencies still rising

US economic data showed mixed signals as unemployment claims (308,000 versus 315,000 expected) came in slightly ahead of consensus, but the ISM non-manufacturing PMI disappointed (54.4 vs 57.2).

The mildly positive unemployment claims print wasn’t enough to encourage any USD longs, particularly following confirmation that there will be no non-farm payrolls release this week. This just puts a bit more weight on the disappointing ADP number released yesterday. The US economic calendar really looks thin now that the non-farm payrolls data release has been delayed. As a result, we feel Japan is the market to focus on with the BoJ meeting and as well the press conference to follow.

Yen eyeing further strength

USD/JPY seems to be treading water at the moment after having dipped to a low of 96.93 overnight.  Although the pair has since recovered to 97.30, it still looks vulnerable as the safe haven play underpins the yen. The 200-day moving average on USD/JPY comes in at 96.57 and that’s the next level to watch.

US government shutdown hasn’t done Japanese officials any favours this week. Meanwhile Japan will be concerned by the yen strength in the wake of its safe-haven appeal and the sales tax hike announcement. The consumption tax will be pushed up to 8% and they will try to counter this with a ¥5 trillion corporate tax cut. While the market wasn’t too pleased by the expected corporate tax cut, we feel this really puts pressure on the BoJ to act when it meets today. While the BoJ is not expected to announce anything today, the press conference will be very interesting as they are likely to make some comments around the impact of the sales tax and this might cause some volatility in yen price action.

Euro the destination of choice in risk

With the US dollar continuing to struggle on the US government shutdown, risk currencies managed to gain some ground against the greenback. EUR/USD rallied to a high of 1.365 and continues to hold its ground with the year’s highs at 1.371 well and truly in sight. AUD/USD has also been making moves and is making a push to establish itself above 0.94. All week we have been emphasising that the pair is establishing itself in a new trading range at higher levels and this seems to be the case as US dollar longs continue to unwind. This week’s RBA statement set the tone for an AUD rally as the central bank removed a key line regarding AUD strength concerns.  GBP/USD has also maintained its positive run and remains above 1.61. As a result it’s been an overall positive week for risk currencies and one starts to wonder at what point the US political impasse will start to weigh on risk FX. We will start to see some significant resistance levels tested in the near term and it will be interesting to see if traders can hold on to their longs. Heading into the weekend we will be very cautious about the current price action, with the US situation having the potential to cause volatility at any time. 

EUR/USD continues to trend higherEUR/USD continues to trend higher

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