Political Uncertainty Pressures Japanese Yen

Besides the cautious approach by investors ahead of theAlcoa earnings report after the close, U.S. markets are reacting to thesell-off in the Japanese stock market. Japanese equities broke after thenation’s ruling party lost more seats than expected in Sunday’s upper-houseelections.

Besides the cautious approach by investors ahead of theAlcoa earnings report after the close, U.S. markets are reacting to thesell-off in the Japanese stock market. Japanese equities broke after thenation’s ruling party lost more seats than expected in Sunday’s upper-houseelections.

This new round of political uncertainty could mean moreeconomic woes for the country. Traders are worried that a drop in equity pricescould increase the chance of a double-dip recession. In addition, someinvestors feel the economy will be threatened by the possibility of deflationonce government stimulus fades and if global demand declines.

The USD JPY was under pressure most of the night as tradersinterpreted the news as bearish for the currency. Early last week theDollar/Yen posted a daily closing price reversal bottom. This bottom wasconfirmed by a subsequent three-day rally. Although the chart indicates thereis room to the upside with 90.97 a potential upside target, traders should beaware of a possible short-term correction back to 88.06 before moving higher.

Friday’s closing price reversal top on the daily chart inthe Euro was also confirmed overnight. The current chart formation suggests apossible 2 to 3 day break back to 1.2436 to 1.2369 over the near-term.