The yen is certainly enjoying its safe haven status. As negotiations in the US concerning a government shutdown got stuck in the mud, safe haven currencies are sought after.
And as this crisis involves the US, the better bet is the yen: USD/JPY opened with a Sunday gap to 97.55, and while it is recovering, the gap is still open. This could be a bearish sign.
The latest from the political stalemate in the US is that the Republicans passed a bill in the House of Representatives that ties Obamacare to avoiding the shutdown. The Democrats, which control the Senate, are not willing to discuss it.
The fiscal year ends today and last minute negotiations could still result in a deal. In addition, the US government has already experienced a shutdown in 1996, and the economy survived it quite well. A shutdown still leaves essential staff working.
The bigger fear is the debt ceiling: if politicians don’t raise the debt ceiling until the middle of the month, the US could default on bond payments. A default, even a “technical†one, could shake the whole financial world.
On Friday, USD/JPY dropped and bottomed out at 98.10 before closing at 98.25. The drop of 60 pips lower is certainly telling. The pair did climb above 98 for a short period of time, but couldn’t hold on to this ground nor close the back. At the time of writing, it is trading at 97.83.
Later in the day, headlines from Washington will begin appearing. If no progress is made, the pair could certainly fall lower.
For more, see the USDJPY forecast.
The yen also enjoyed a gap against the euro, as political fears are also engulfing Italy: Berlusconi withdrew his ministers from the government and it basically collapsed. The coalition government was quite fragile.
