Vantage FX | Yen up Nikkei down, Aussie finds support | 27th December 2012

December 27, 2012

Central banks have taken the lead in this crisis over the past 5 years driving interest rates to zero in many jurisdictions and providing their balance sheets in order to perform quantitative easing. All of this has been aimed at lowering the return on saving and driving money into the stock market and other areas of the economy  in the hope that where the stock market goes so goes the overall economy.

While the US, European and Japanese economies continue to struggle with high unemployment rates and generally low rates of aggregate demand their stock markets have certainly benefited from the unconventional monetary policy.

The election of Shinzo Abe in Japan and his overt attack on the Bank of Japan’s independance is a game changer for Japanese markets and the Yen and potentially a negative game changer for the globe. On his first day in office yesterday Abe upped the ante on the BoJ saying that  ¥90’s, against the US dollar, was very different for Japanese business than ¥80’s. The Wall Street Journal is reporting that he said,

as a minimum if the U.S. currency “is above ¥85, companies that haven’t been paying taxes until now” because they are making a loss would be able to pay taxes.

Mr. Abe also repeated calls for the central bank to set a firm 2% inflation target at its January policy-board meeting and threatened to take legislative action to force the bank’s hand.

Adding to the speculation that the Abe election is a game changer were the minutes from the recent BoJ meeting which showed a desire to explicitly target a weaker Yen.

As you can see the USDYen is up sharply and holding above 85 this morning at 85.60. It is now above the 200 week moving average for the first time since December 2007 and approaching an old support resistance line that stretches back to 2009 and comes in at 86.61 at the moment.

As a result of the combination of Abe, the BoJ and the USDJPY sell off the Nikkei was up almost 1.5% yesterday and the index, as you can see in the Bloomberg chart above, has now clearly broken a multi-year down trend and taken out the high for 2012 on very strong volume suggesting that fresh money is being put to work.

These moves are based on hope more than anything concrete but clearly the new Japanese Prime Minister has won a mandate to tries his policies and try he will – so markets are giving him the benefit of the doubt for the moment.

Elsewhere the big news was that even though house prices fell in October they are still up 4.3% year over year according to the Case Shiller house price index in the US but this news has been more than overshadowed by disappointing results for the holiday shopping season from US retailers and the enduring Fiscal Cliff Shenanigans.

Stocks

So with 23 minutes to go before the close the S&P 500 is off its lows for the day and is down 4.96 points or 0.35% to 1421.70. The Dow is only 0.09% while the Nasdaq is off 0.61%.

Global FX

The Aussie Dollar was under pressure and fell as expected over the Christmas period finding support just above the old downtrend line it broke up through a little while ago – it’s funny how these old lines work when in theory they have little relevance but it simply suggests that like me traders and strategists leave them on their charts.

You can see this pattern on the chart above. As it stands this morning the 4 hour and daily charts suggest a short term rally as long as the AUDUSD are above 1.0335/39 with a target of 1.0420 maybe 1.0447. On the downside we have support at this 1.0335/39, 61.8% retracement of the 1.0150-1.0584 at 1.0314 and below this the 200 day moving average at 1.0294. 1.0280 is a very big level as well representing the 6 week low.

The Euro  sits at 1.3219 this morning while GBP is at 1.6132 with a bias to fall further once 1.6090 gives way.

Commodities

Gold sits at $1660 oz largely unchanged while Silver is up 0.48% to $30.19 oz. Oil and copper were big movers however with nymex crude up 2.69% to $90.99 Bbl and Copper rose 1.50%. The Ags were smashed lower however with Corn down 1.56%, Wheat fell 2.52% and Soybeans fell 1.06%.

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