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EUROPE FX: JPY Tumbles on LDP Win; U.S. Cliff Dominates The Week

Dec. 17 (Bloomberg) -- Stronger-than-expected Japanese LDP victory sent USD/JPY to 20-month high while EUR/JPY gapped up at open to hit highest since March; U.S. fiscal cliff may dominate mkt attention this week. * EUR/USD -0.1% to $1.3154, hit $1.3190 earlier, highest since

May 2, 2012 * USD/JPY +0.5% to 83.96, hit 84.48 highest since April 12,

2011 * EUR/JPY +0.4% to 110.37, open gapped to hit 111.32, highest

since March 21, 2012 * GBP/USD +0.1% to $1.6192, reached $1.62, highest since Oct.

5 * EUR/GBP -0.2% to 0.8126; hit 0.8156 earlier, highest since

0.8161

* BOTM-UFJ:

* Stronger than expected election victory for Japan’s LDP

and leader Shinzo Abe encourage JPY selling in Asian

trading, Derek Halpenny, strategist at BOTM-UFJ, writes

in note

* Victory allows new govt to by-pass upper house

opposition in setting new legislation; PM-elect Abe

already upping pressure on BOJ before policy meeting on

Dec. 20, says will work with BOJ on setting a new 2%

inflation target

* Sustained JPY selling will depend on credibility of

govt’s plan to trigger shift in inflation expectations * Sustained JPY selling will depend on credibility of

govt’s plan to trigger shift in inflation expectations</li></ul>

* Standard Bank:

* Japan goes through prime ministers faster than Greece

goes through bailout funds; mkt seems to think Abe’s

LDP-led govt is different as Abe focuses on BOJ policies

and JPY value, Steven Barrow, strategist at Standard

Bank, writes in note

* Another powerful rally in USD/JPY possible if BOJ goes

for 2% inflation through aggressive monetary easing;

anything short of this could push USD/JPY back to 75

* Expect BOJ to do more aggresive easing; USD/JPY to rise

to 90 in 2013 * Expect BOJ to do more aggresive easing; USD/JPY to rise

to 90 in 2013</li></ul>

* BNP:

* EUR may benefit from positioning; overall EUR positions

cut back substantially between mid-Sept and Nov; won’t

be surprised to see EUR-positive flows dominate on yr- end window dressing

* Main uncertainty for FX mkts centres on U.S. fiscal

cliff; expect deal before yr-end; positive news on cliff

talks could signal further EUR/USD gains; maintain $1.33

yr-end forecast * Main uncertainty for FX mkts centres on U.S. fiscal

cliff; expect deal before yr-end; positive news on cliff

talks could signal further EUR/USD gains; maintain $1.33

yr-end forecast</li></ul>

* Citigroup:

* NOK/SEK tailwinds may take it past recent highs; expect

Riksbank to deliver 25bps cut tomorrow and forecast a

stable conditional rate path; Norges Bank may leave

rates unchanged despite trade-weighted NOK at all-time

high in past wks, Josh O’Byrne, strategist at Citigroup,

writes in note

* USD/JPY may pull back below 83 in next 2 days as mkts

digest Japanese politics; expect pair to rise early Jan.

on bets for accomodative BOJ policy and concerns of JGB

downgrade, Osamu Takashima, strategist at Citigroup,

writes in note

* Expect USD/JPY to peak at 85-86 in spring; downside risk

limited to around 82 in 2013 * Expect USD/JPY to peak at 85-86 in spring; downside risk

limited to around 82 in 2013</li></ul>

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