The Top 3 Currency Trends in 2013 - Part 1

This is a 3 part series of the Top 3 Currency Trends expected to persist in 2013. Each part will be published on a weekly basis.

1. Yen weakness

The new Japanese government led by Shinzo Abe has been pressuring the Bank of Japan into implementing further easing of monetary policy. The Yen has weakened considerably on Abe's pledges for more monetary and fiscal stimulus. Since the middle of November the Yen has fallen over 9% against the dollar. See the chart below.

The USD/JPY traded at 81.40 on November 20. The blue line is the 20 day Simple Moving Average, the red line is the 50 day SMA. The pair closed at 90.07 on Friday.

The Japanese currency performed even worse against the Euro. The Yen lost close to 15% against the Euro since November 20, or expressed in pips – 1555 pips. Look at the chart below.

The Japanese Government and the Bank of Japan will issue a joint statement next week

On January 15 the Japanese prime minister said that the BOJ should implement an inflation target of 2% per year. Just yesterday on Sunday, January 20, the Japanese Economics Minister Akira Amari said that the government and the BOJ were getting closer to an agreement on a joint statement on monetary policy.

The statement is expected to be issued next week. Amari added that the statement would probably not include the phrase "long-term" to describe the timeline for achieving the inflation target, meaning the Japanese government wants the BOJ to get right on the printing press and deliver the 2% inflation as soon as possible.

BOJ starts its 2 Day Monetary Policy Meeting

The BOJ starts its 2 day monetary policy meeting and will deliver the statement on monetary policy on Tuesday, January 22. Sources "close to the BOJ thinking" say that the BOJ will adopt the new 2% inflation target on the meeting. It is also speculated that the Bank is thinking about doing open ended purchases until the 2% target is met.

How far could the Yen weaken?

Koichi Hamada, an advisor to the Japanese Prime Minister Abe has characterized a level of 110 on the USD/JPY as too weak. Hamada said that: "Policy makers are working hard to raise prices and influence the yen, if it goes too far, it should be stopped".

Japan's weak Yen policy also has an effect on its trading partners. A group representing Ford, General Motors and Chrysler last week said that President Obama should tell Japan’s new government that the U.S. will retaliate for the weak Yen policy.

What do the Technicals Say?

The USD/JPY is trading at 90.07 right now, the highest level in the past 2 years. From a technical standpoint, the trend is up and notable resistance level to the upside include 94.97, 101.43 and 110.65. See the chart below for this.

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