Unsurprisingly, the current US government shutdown is weighing on many currency pairs involving the USD. However, the dollar has particularly lost ground against the yen and this is due to a variety of factors.
The US government is only partially functional with over 800,000 workers being told to stay at home without pay. This has wider implications for the US economy with some analysts stating that this could result in a loss of GDP in excess of 1.4% (depending on the duration of the shutdown).
View from the dealing floor by Tarik Chebib works on IG’s dealing floor. For more information: https://www.ig.com/au
On the other hand, the implementation of a raft of reforms by Japan’s PM Shinzo Abe and an impending tax hike has meant a constant strengthening of the yen. This is likely to have a significant impact on the economy, with Japanese exports becoming more expensive for all its trading partners. Going forward the Japanese government will clearly be interested in making sure the yen weakens.
The government shutdown in the US is only bearable for a short amount of time. Once it has been resolved, the pressure on the USD will reduce and a greater focus will be placed on the fundamental data. Ben Bernanke and the Federal Reserve recently decided that quantitative easing will continue unchanged. Some analysts now believe it will remain the same for the rest of Bernanke’s time in office –which is likely to be until January.
Looking at IG’s daily chart, technical analysis shows the currency pair trading in a range between 100.00 and 96.00 since mid-July. The same is true for much of April 2013. There seems to be great resistance at the 100.00 mark with support levels at 97.00 and 96.00. The bears have been in charge for most of the time since 11 September 2013.
The pair has tested lows around 96.50 this week, after recently recovering to levels above 97.00. The longer the shutdown continues the more likely it seems the 96.00 level will be tested before any major correction will happen.
It will be interesting to see if the fundamentals can support technical analysis going forward and if the bulls can resume taking charge of the pair.
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