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Tales from the currency war: EUR/USD & USD/JPY

FXstreet.com (San Francisco) - After flirting with the 100.00 frontier during the Thursday session, the USD/JPY traded lower on Friday to the 98.60 region and, following a consolidation period, the pair was ready to close the week at 99.00. But suddenly the US Treasury took the scene and they affirmed US "will closely monitor Japan's currency policy" and will press to Japan to refrain its Yen devaluation.

The USD/JPY collapsed around 80 pips in a few minutes to test intra-week low area at 98.10. Then the pair bounced to close at 98.40. The pair fell 1.20% on the day and it remains strongly bearish according to the FXstreet.com trend index. As for the short term, MACD, CCI and Momentum indicators are pointing lower in the 1-hour chart. But in the wider 1-day picture, same indicators are positive. Supports are at 98.10, 98.00 and 97.80. Resistances are at 99.00, 99.40 and 99.90.

Heat Map usd jpy

According to the official statement, Japan should refrain from competitive devaluation. They advice Japan not to engage in large scale bond buying programs as the Nippon country shouldn't print $80 billion in cash per month. The Treasury said US will press Japan to refrain from the devaluation as the Nippon country must use only domestic instruments for monetary.

But, Which part of "U.S. Says It Is Monitoring Japan on Yen Policies" is not obvious? All central banks are monitoring other central banks all the time. The news here is that they say US "will press Japan" to take what they believe is the right way. However, in the case Japan rejects Treasury's advices, will the Fed devaluate the USD? Currency war? By the way, United States declined to named China as currency manipulator.

Is the Yen weakness benefiting the EUR/USD?

In the meantime, what is the BoJ easing effect in other currencies? In the EUR/USD there are a lot of opinions. If you see the ING Bank analyst team , they states that "Suggestions that even EUR may benefit from JPY weakness seem improbable given the Eurozone's other problems including the credit crunch."

Early on the week, Sebastien Galy, Senior FX Strategist at Societe Generale stated that the euro may be replacing the JPY as a funding currency and it could be creating a short covering that boosts EUR. That opinion was shared by Emmanuel Ng of OCBC Bank, who notes that in the near term, market talk of diversionary investment flows out of Japan may benefit the EUR for as long as system tail risks remain under wraps.

Danske Bank research team is contrary to UBS too, as they points that "the aggressive BoJ easing is not just JPY negative but, at the same time, also EUR positive through its effect on European government bond markets." Danske Bank expects "these flows combined with the fixed income market becoming less eager to price a swift Fed exit on the back of US soft patch to prop up EUR/USD towards 1.33 on a 3M horizon."

The EUR/USD recovering ground from early losses on Friday to trade above the 1.3100 level and to trade at intra-day highs at 1.3125. The Pair closed the week at 1.3105. According to the FXstreet.com trend index, the pair is slightly bullish with indicators such as CC and Momentum pointing north while the Stochastic and MACD going neutral in the 1-hour chart. In 1-day picture, CCI and Momentum are bullish, MACD neutral and Stochastic bearish.

Heat Map euro dollar

As for the short term, above 1.3100, a surpass of 1.3138 (high Apr.11) would open the door to 1.3140 (MA55d) and then 1.3150 (MA100d). On the downside, immediate support at 1.3044 (low Apr.11) followed by 1.3006 (low Apr.9) and finally 1.2980 (MA10d).

Finally, Scotiabank states that the Bullish bias persists in EUR/USD, GBP/USD and USD/JPY. According to E.Theoret, Strategist at Scotiabank, the outlook for all three major crosses is bullish: in the case of the euro, “signals are in buy, but spot’s failure to close above the 50day MA is a concern”. Regarding the sterling, he added that “all signals also in buy territory; we favour long positions”. For the USD/JPY, “all signals in buy territory, a break above 100 is likely to accelerate buying”.

Session Recap: Euro closes higher; US Treasury hurt the BoJ plan

Late in the day, the US Treasury published its report on exchange and rates policies and they said that Japan should refrain its Yen devaluation. The reaction was hard for the BoJ plan to weaken the Yen with the USD/JPY, EUR/JPY and GBP/JPY falling hard to trade close to weekly lows.
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Forex: EUR/USD finishes the week +1.06%, resistance at 1.3150 still in focus

The EUR/USD finished sharply higher for a second straight week, closing up 138 pips at 1.3110. The pair is now up 2.42% in just the last two weeks. Dip buyers stepped in take advantage of early weakness during the New York session, with the pair establishing firm support near the 1.3040 level which held firm on numerous attempts and helped the pair drift higher later in the day.
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