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Forex: EUR/JPY knocked out on issues for Japan PM Abe

Investors priced in strong expectations of an aggressive stance, both fiscal and monetary, in Japan as Shinzo Abe convinced the people to vote for him. As his plans were increasingly known, the JPY eased further, coming to a new EUR/JPY high after BoJ's Shirakawa early leave, at 127.70.

However, things are not ending up as well as predicted, as reports say Prime Minister Abe may have to settle for a less radical candidate to succeed BoJ Governor Shirakawa. “Abe's desire for much bolder monetary easing is reportedly meeting resistance from inside the MoF, the BoJ, and even within his own cabinet, on fears that radical easing could unsettle the JGB market”, wrote UBS analyst Gareth Berry.

At the same time that the Yen rebounds, the Euro has been falling from overbought conditions. Today's EUR/JPY range already totals 200 pips, with a low at 123.55. The pair trades around 124.00 at the time of writing. “EUR/JPY is starting to correct lower and our attention has reverted to the 6 week uptrend at 121.12 and the 3 month uptrend at 118.86”, wrote Commerzbank analyst Karen Jones.

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