Asian stocks gained and the Japanese yen touched its weakest level in almost six months after an accord was struck to set limits on Iran's nuclear program.
As part of the deal, Iran agreed to curtail its nuclear activities and in return won an easing of "certain sanctions" on oil, auto parts, gold and precious metals - to the tune of USD7 billion in relief. Without removing sanctions on oil exports, it releases some of Iran's oil assets and allows it to keep exporting crude at current levels.
Financial markets reacted by piling on risk and leaving safe haven currencies like the yen. The yen was further pressured because more shorts have entered the market. According to data by the US Commodity Futures and Trading Commission (CFTC), The difference in the number of wagers by hedge funds and other large speculators on a decline in the yen compared with those on a gain - so called net shorts - expanded to 112,216 last week, the most since 2007.
Japan's statistics bureau may report later this week that the nation's consumer prices excluding fresh food (a benchmark indicator for inflation) rose 0.9 percent last month from a year earlier. "Deflation is coming to an end in Japan and the nation's economy overall is recovering as expected. Real GDP is growing, business confidence is improving and corporate profits are picking up," Mitsuhiro Furusawa, Japan's Vice Minister of Finance for international affairs said at a forum in Tokyo this week. If inflation figures do rise as expected, the yen would weaken further as business confidence on a recovery sets in.
Last week, Japan's central bank kept its pledge at a policy meeting to expand the monetary base by as much as 70 trillion yen a year to help spur inflation. Bank of Japan Governor Kuroda's remarks about the yen not being "excessively weak" caused Japanese bond yields to fall to the lowest in two months. The extra yield that US 10-year Treasuries offer over similar-maturity Japanese bonds expanded to 2.19 percentage points last week, the widest level since 12th Sept.
It's no secret that the Bank of Japan wants to achieve a 2 percent inflation in about two years. Based on the above data, they should hit their goal within the 2 year time-frame. As it is, the yen has weakened 13 percent this year against a basket of nine developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, the biggest decline within the group. In comparison, the dollar has risen 3.8 percent, while the euro has advanced 6.9 percent.
Top News This Week
US: Core Durable Goods m/m. Wednessday, 27th Nov 9.30pm.
I expect figures to come in at 0.5% (previous figure was -0.2%).
Canada: GDP m/m. Friday, 29th Nov 9.30pm.
I expect figures to come in at 0.1% (previous figure was 0.3%).
Trade Call
Long USD/JPY at 101.46
On the H1 chart, USd/JPY has hit a six-month high of 101.80. The reasons are both due to a risk-on mode in the financial markets and better data from Japan which points to a recovery. The bias is to go long and follow the upward monentum.
We will go long once prices retrace and touch the EMA12. A stop loss of 36 pips is placed below the previous low. We will have two targets on this trade, exiting the first position at 101.82 and the second one at 102.18.
Entry Price = 101.46
Stop Loss = 101.10
1st Profit = 101.82
2nd Profit = 102.18
(click to enlarge)
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. (More...)
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