Geopolitical tensions in Iraq, with militants taking control of a strategic Shi’ite town – Tal Afar – located in the North of the country, continue to drive US yields lower. The US-year yield is down 7bps from Friday’s high of 2.644%, pushing USDJPY below the 102.00 level. The next resistance on the pair stands at 101.70, followed by 101.55 (last week’s low). Last week, Bank of Japan decided to keep its monetary policy steady and seemed quite confident that the economy will meet its 2–percent inflation target without additional stimulus. Vols on USDJPY are now back to historical levels (for instance 1W ATM is trading at 5.47%), and the pair seems now stuck in the 100.75 – 103.00 range as we reported last time in our Update on Japan.
The Nikkei index dropped below the 15,000 (closing at 14,933) as geopolitical tensions kept investors on edge, a red session that continues now in Europe with the DAX down 1.6% since last week all-time-high of 10,033.74.
The British pound hit a high of 1.7010 against the greenback this morning before it started to be sold. A support zone is seen between 1.6900 and 1.6920 where we could potentially find new ‘buyers on dips’. In the UK, there are the Financial Policy Committee at the Bank of England and inflation figures tomorrow, BoE minutes on Wednesday and Retail sales on Thursday. On the US side, the Fed meets this week and there is little doubt on a update on its monetary policy; it will continue its Taper ‘auto-pilot’ strategy by cutting purchases by another $10bn bringing down the APP to $35bn.
The Euro remains week against the major crosses, trading below 138.00 against the Yen, at 1.2175 against the Swiss Franc and at 0.7980 against Sterling. We wouldn’t play the single currency for the moment especially after the sharp fluctuations we saw in the last couple of weeks; perhaps we will try to be long EURGBP (intraday position) based on a technical view (RSI is showing an oversold signal at 21) with a ST target at 0.7990.