Dollar & Euro On The Pullback, Yen Likely To Suffer

 The US Dollar dropped against the Japanese Yen during early trading on Monday but the currency did not stray too far from its recent 2 and a half year high.

With trading now well underway, most analysts expect to see more monetary stimulus this year from Japan and less from the US Federal Reserve.

So while the US Dollar may be pulling back against the Japanese Yen it may prove to be short lived with investors expecting the uptrend to remains in tact and for price to rise higher.

On Friday, the Yen's relative strength index as against the U.S. Dollar had touched 15.5 which was the lowest since December 2001.In fact, this is considerably lower than the 30 level which traders often view as a signal that an asset's price has dropped too fast.

 What I expect now is that we should see a respite in Yen weakness against the Dollar, after the currency weakened last week on speculation that Japan will boost efforts in order to spur growth. Economists expect that the Japanese government could announce around 12 trillion Yen ($136 billion) in fiscal stimulus in January.

Japan's new Prime Minister Shinzo Abe said recently that "Bold" monetary policy is one of the three prongs of his economic measures. Expect the market attention to shift to the first Bank of Japan (BOJ) policy makers meeting of 2013, scheduled to be held on January 21st and 22nd.

The Yen earlier gained 0.3% to 87.86 per Dollar and by 0.6% to 114.53 per Euro. The Dollar, for its part, gained 0.3% to $1.3033 per Euro.

 

The Euro was also down against the Japanese Yen early in the day but similarly remained close to its recent 18-month high hit last week.

 Minutes of the U.S. central bank's latest meeting, which were released last week, had shown that U.S. policy makers could curtail monetary stimulus this year.

Richmond Federal Reserve President Jeffrey Lacker will speak tomorrow in South Carolina and ahead of the address, the Dollar Index (DXY) has gained for a fourth day.

The Dollar Index, which Intercontinental Exchange Inc. uses to track the Dollar against currencies of six major U.S. trading partners, has advanced 0.2% to 80.644 from Friday.

 

 European Central Bank (ECB) President, Mario Draghi's, Governing Council is on Thursday expected to hold its benchmark main refinancing rate at a historic low of 0.75%.