Focus on Yen
The USD/YEN push through Y105 overnight is leaving the downside well and truly exposed, with the 101+ area vulnerable for 100 and then to the mid-and lower ’90′s. The big swing target for bears remains the 1995 low at the 79.80 area, and while a solid case for why the Yen should be there can always be built on trade flows etc., chances are that current levels should be attractive to USD bottom fishers. Corporate Japan will be stepping up their complaints as the yen surge will start to hit exporters, and while the BoJ may be loathe to step in and fend off yen buyers, given that the worlds focus is still on China, they may see the window here as being open to them. Keep in mind that the economic data has been patchy at best here for months, the last thing that the BoJ wants to see is any signs of recovery nipped out by a strong yen. On a chart basis, the falling channel line near 104 is attractive for bottom fishers, but the weekly chart (below) highlights the ‘floor’ ahead of 100. This is important, and if lost then the trading activity is likely to become ‘one way’ for some time to come, so risk levels are key to hold now. Upside? If the view that the ‘doom and gloom’ on the US economy is way overdone is right then chances are that the Yen should be a sell ahead of Y104 for a push above 105 again. Use 105 to 105.30 as res. levels to break for 108.60 again, then up to higher levels. The turn below 105 is a watershed though, and while the ties to the general ‘risk appetite’ in the world and equity markets is anecdotal to a large extent, the markets are treating the Yen as a ‘flight to quality’ currency. So… plenty of crosswinds and the price action is quite sharp. But… at current levels the yen is poised to firm a lot further, see if the 104 area proves sticky, or 101/100 and a lot lower here we go.
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