A Strong Yen and Indecisive US Dollar

For Asia-Pacific region indexes, Monday’s trading was extremely mixed: almost all the indexes in China, Hong Kong, and South Korea were in positive territory amid the stabilization of the US dollar, which ended its long decline. But trading in Japan was in the red, since the national currency continues to strengthen. If the 111 mark reached last week seemed somehow unrealistic not too long ago, then the USD/JPY pair’s convergence on 110 is putting strong pressure on the Japanese stock market.
The Nikkei 225 fell 0.62% on trading, again dropping below the psychological barrier of 20000. Investors are again awaiting this week’s events: Tuesday’s publication of Bank of Japan minutes on monetary policy. On Wednesday, everyone will be carefully watching news from the United States: we’re waiting for current economic indicators and the publication of the interest rate decision. Then again, the forecast is still fairly stable and unchanged – there is a high degree of probability that the rate will remain at 1.25%.
If the Japanese yen continues to strengthen in the next few days, the Nikkei 225 might fall even more, right down to the previous strong mark at 19850. If the US dollar strengthens and surpasses 20000, the target could be 20150.
The other Asian indexes will keep trading quite moderately through Wednesday. Investors will be cautious to avoid making things worse before the interest rate decision.

The situation in Europe is unfolding somewhat differently, although it is generally similar: the euro, which has been strengthening against the dollar for a long time, is keeping trading out of positive territory. The EUR/USD pair, which has long traded above 1.16, is keeping indexes, including Germany’s DAX, the Europe-wide EURO STOXX 50, France`s CAC 40 near zero or negative territory. European investors will also be watching for the Fed’s interest rate decision on Wednesday, staying on the sidelines to reduce their risks. If the rate remains unchanged, the euro might easily cross the 1.17 mark, which will also adversely impact trading.

The uncertainty over the dollar is good news for commodities, including Brent crude, which is trading above $48/barrel. Investors are waiting for American Petroleum Institute (API) data on Tuesday and final Department of Energy data on Wednesday. Also, if the Fed decides to leave the rate unchanged, Brent crude might try to conquer the $50 mark Wednesday evening.

Yuri Prokudin, Olymp Trad

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