USD/JPY
Underlying Political Tensions: According to Chief Cabinet Secretary Shinzo Abe, the Japanese government needs the assistance and full cooperation of the Bank of Japan in combating deflationary pressures still existent in the economy. Suggestive of continued loose monetary policy in the region, the comments follow earlier statements by the ruling Democratic Party's policy chief Hidenao Nakagawa. The Nihon Keizai reported Nakagawa opposed an early change in the Bank of Japan's policy saying that the central bank "has no independence" in its decision making. He additionally added that should the bank not understand this, "we may consider changing the Bank of Japan law. Although creating some anxst in the region, the comments were somewhat tossed aside as traders focused more on the lingering zero interest rate policy in adding to downward pressure on the domestic currency.
Technically Speaking: The dollar doesn't seem to know where to stop against the yen. A fresh 26-month high moves the pair beyond the 50.0 fib level at 118.45 of a three year long retracment. In most cases, the momentum through such a significant level would ride high, but a subsequent 38.2 fib of an even longer and more relevant retracement is containing any exuberance at 119.20. A quiet retest of the former resistance at 118.40 is likely in order with the rising bottom channel line - currently at 117.50 - being a firmer level for returning dollar bids.
AUD/USD
Bond Yield Gap Narrowed: Traders pared back long positions in the Australian dollar today as the short term bond yield gaps between the U.S. and Australian two-year notes narrowed to a four year low. Reduced to 77 basis points, the gap once stood at 198 basis points at the beginning of the year. With the Australian economy plateauing and further interest rate hikes seemingly unnecessary, traders continue to hammer the underlying major with favoritism leaning to the greenback. U.S. interest rates are speculated to continue their rise going into yearend compared to an already twelfth increase by Federal Reserve officials in attempts to head off nascent inflationary pressures. The concept of a narrowing gap has already pushed the Aussie 6.7 percent lower against the U.S. currency on the year.
Technically Speaking: The aussie dollar pushed to a fresh yearly-low against the greenback in trading today after breaking short-term support at 0.7285. Dollar bidding is likely to slow however as a confluence of two fib levels marks heavy support. A 23.6 fib level of a three-year retracement lies at 0.7250, sharing the level with a 38.2 fib of last years large dollar rally. Looking north brings the former support at 0.7285 as near support with a more aggressive bids for another dollar rally coming at the upper bound of the falling channel currently residing at 0.7325.
EUR/USD
Dour Data Again: Adding to already downward pressure on the single currency, economic data for the Euro zone was mildly unimpressive contrary to recently hawkish statements issued by policy makers. For the month of October, Italian consumer prices remained in line with expectations as industrial production fell for the month of September. Expected to dip 0.6 percent on the annualized figure, output in the region has fallen 1.6 percent.
This annual decline hardly warrants any interest rate considerations and proves considerable issue of jawboning by European officials in recent days. Additionally, doubts have been expressed by experts over the effectiveness of the newly instated Grand Coalition government in the region's largest economy. Formerly introduced late last week, the Coalition has already mentioned legislation of increased taxes, namely the VAT and the wealth tax. Dubbed an economic disaster, the new taxes would effectively curb any potential in future spending by consumers domestically as well as increase difficulties for already depressed producers.
Technically Speaking: Pairs reaching fresh levels today have found their leader in the EURUSD, which moved to a two year low. Moving into the area, that price action hasn't seen in months provides problems when looking for solid technical levels. While a 50.0 fib of a less important retracement is currently within a stone's throw at 1.1635, a more likely level to test will be 1.1600/1585 which pulls a psychological level together with a 38.2 fib of the five year euro rally. Multiple tests of the intraday level at 1.1795 will likely cap an attempt by euro bidders to turn the pair around. What is without doubt however is that the EURUSD pair has plenty of room to move within these bounds.
Richard Lee is a Currency Strategist at FXCM.
Free Festival of Traders Videos
