USDJPY jumps to 116

The major talking point during European trading today is the USDJPY unexpectedly jumping 130 pips while recording a new six-year high of 116.096. The JPY weakness has been led by reports that Japanese Prime Minister Shinzo Abe, following a slip in public support levels over the recent weeks, is considering holding a snap election and postponing, or even cancelling altogether, the rumoured sales tax increase for 2015. The combination of these two surprising reports has resulted in the widespread punishment of the JPY today. At the moment, these reports are just rumours, but we could be in for an interesting trading session in Asia later if the story escalates further.

Elsewhere, both the Eurodollar and Cable are trading narrowly (within 30 pips) with investors clearly showing caution before key economic data is released later in the week. Investors are hesitant towards purchasing the Sterling, due to awareness that so many potential downside risks are present for tomorrow’s Bank of England (BoE) Inflation Report. BoE Governor Mark Carney could really punish the pound by expressing the potential Spring 2015 UK rate rise is off the agenda. It is also worth noting that the BoE has always maintained strong views on weak price pressure (inflation) and Carney could weaken GBP investor appetite further if he downgrades future inflation expectations tomorrow in the wake of UK inflation falling to a five-year low.

In reference to the difference of opinion regarding Brent Oil’s spike to $84.96 on Monday morning, it can now be deciphered that the move was linked to improved China exports and Dollar profit-taking, rather than elevated geo-political tensions in Eastern Europe and Libya. It was surprising that some assumed the re-surfacing of political tensions to be behind the bullish move because there have been concerns regarding an oversupply of oil for weeks now. Since the unexpected appreciation on Monday morning, Dollar strength has since pressured Brent Oil into recording a new four-year low ($81.23).

Written by Jameel Ahmad, Chief Market Analyst at FXTM.

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