Keagan York | May 28, 2013 07:25AM ET
Abenomics will struggle to control a jump in government bond yields. The currency gained against most of its trading counterparts even after Haruhiko Kuroda, Bank of Japan Governor, faced the media to say that Japan could cope with rising interest rates. As bond yields gained, the cost of shorting yen has increased significantly and may yet spark a more aggressive strengthening of the yen. With markets in the U.S. and the U.K. closed yesterday we may see more volatility as these markets reopen this evening. The Yen has weakened more than 17% in the last six months so the magnitude of a reversal could be significant. USDJPY opens the morning hovering around 101.00.
Meanwhile in China, there are increasing signs that the leadership of President Xi Jinping is willing to tolerate a slowdown in China in favour of protecting the environment and may yet avoid the type of stimulus programmes that have been embraced by central banks across the world. The State Council, which is headed by Premier Li Keqiang, has approved a series of tac reforms to revamp the economy. Increased pressure on the labour market and rising local government debt burdens across the nation are forcing the new administration to push through reforms to avoid what some are fearing will be an inevitable hard landing for the world's second largest economy.
Markets in both the U.S. and the U.K. where closed for public holidays so limited liquidity saw relatively muted trading con-ditions overnight. European markets recovered form their first weekly loss in over a month as technology stocks claimed. The Stoxx Europe 600 index gained 0.3% and volumes were more than 60% lower than the average of the last month in quiet conditions. SAP, the world's largest maker of business management software, gained more than 2% on acquisition news. The DAX gained 0.94% while the CAC 40 rose 0.97%.
Now to the future outlook. We have changed out medium term bias to neutral as out medium term target was reached late week at 1.2800 and since the pair has been unable to find willing sellers despite all the negativity surrounding Europe and the belief that the US Fed will cut back QE in the coming months. We believe the Europe factor is correct but the QE program in our view will not change this side of Christmas.
Compass Direction
Short-Term Medium-Term
NEUTRAL NEUTRAL
It’s an empty calendar for the Asia and European sessions, so we will be expecting more of the same in the way of price action. We have changed our medium term bias from bearish to neutral as we believe we are close if not at the bottom and a turnaround towards parity is the next move.
Compass Direction
Short-Term Medium-Term
NEUTRAL NEUTRAL
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.