USD/JPY – Dragged Down By Weaker Industrial Production, US Debt Ceiling

The Yen strengthened this morning on safe haven flows, brought about by the political impasse of US lawmakers over the weekend.

US House of Representatives voted to only fund the Government only if Obamacare will be pushed back by a year. As Obama has vowed time and time again that there will be no negotiations regarding the debt ceiling, the House votes will effectively shut down a part of the Government operations due to lack of funding. That is assuming that Obama will not back down though. Considering that this is the 1st year of Obama’s 2nd term, it is unlikely that Obama will back down at such an early stage with many more political battles to be fought. Furthermore, the President has already lost some credibility following the Syrian fiasco, and will risk losing all support if he appears to be a walkover this time round. This opinion is further echoed by the White House which released a statement saying that Obama will veto the House’s current bill if it is submitted to him.

Therefore, one cannot blame the market for being jittery, and this translated to lower stock prices and stronger safe haven currencies such as Yen and Swiss Franc. Gold prices similarly received a boost, highlighting the broad risk-off sentiment that is plaguing the market.

Hourly Chart

But that is not all for the Yen. USD/JPY pushed further lower once again due to weaker than expected Industrial Production figures. Y/Y Industrial Production fell by 0.2%, way below the 0.5% expectation and the 1.8% previous. This resulted in the already pessimistic market becoming even more bearish as it suggest that Abenomics may not be performing as well as we think it is.

From a technical perspective, the news event pushed prices below the descending channel, but prices did not push lower further, but instead continue to straddle the Channel Bottom. This suggest that overall bearishness may not be as dismal as it looks, and this notion is affirmed by the fact that prices are breaching the Channel once again. Currently, 97.9 soft ceiling is providing resistance, but bulls will face the real test when Channel Top is tagged (assuming that prices continue to stay around this levels for the next few hours). Should Channel Top is tagged, there could be bearish acceleration towards Channel bottom if 97.7 soft support is breached. However, if 97.9 and Channel Top confluence is broken, the earlier bearish bias will be invalidated and we could even see price reclaiming back 98.3.

Daily Chart

Daily Chart is bearish, with prices breaking all 3 supporting references – Kumo, Rising trendline and Descending trendline. Stochastic readings favors continued bearish movement, with readings breaching the 40.0 “support” and “resistance” where previous troughs and peaks have been seen. This opens up a move towards 97.0 support and potentially 96.0 and even 94.0 if we are not heavily oversold by then.

With BOJ rate decision coming up this week, USD/JPY bulls may have an opportunity to claw back these losses if Kuroda announces more stimulus. This is not a long short considering that a sales tax hike is almost a certainty, and the tax panel did explicitly stated that additional stimulus is desirable if a tax hike is implemented. Other than this potentially bullish event, it seems that risk appetite and disappointment in Abenomics may continue to drag USD/JPY lower in the short-term.

More Links:
AUD/USD – Struggling to stay above Key 0.93 Level
EUR/USD – Feeling Pressure from Resistance at 1.3550
Week in FX Asia – Singapore Warns the FED To Expand

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