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Yen in Focus!
By Mike Conlon | August 30, 2010
CURRENCY WEEKLY OUTLOOK
by Abe Cofnas
FOCUS ON USDJPY
The theatre of action for this week is first and foremost the USDJPY. What happens there will be a major landmark of global market direction. The Yen is clearly a barometer of risk aversion versus risk appetite. Japanese economic weakness, while clearly a function of a multi-decade consumer risk aversion and economic stagnation is also a barometer of global risk aversion. Japanese growth is nearly 0% GDP and a strong Yen is no help at all. We have witnessed a lot of chatter about intervention by the Bank of Japan. In any case, whether the intervention will be real action or simply verbal “jawboning” this week trading the USDJPY pair will provide a lot of action. Let’s take a closer look.
The 4 hour USDJPY chart tells us a great deal about the nature of the price action. We see that the USDJPY pair has an ability to go to extremes. It went to a lower and Extreme Lower Bollinger Band at 83.6 last week, and then reversed to an upper Extreme Upper Bollinger Band at 85.89. This pair is swinging! This suggests being agnostic as to intraday direction and trade the breaks of the Fib levels.
It’s important to keep a very tight watch on this pair, because the event risks are very high with any statements coming from the BOJ or the Finance Minister can cause a large movement. (Click chart to enlarge)
The 15 minute chart is instructive and quite spectacular. Observe an almost perfect upside down V. The symmetry is apparent – the time it took to go up is equal to the time it took to come down! Traders need to watch for a confirmation of a break of the downtrend. Fundamental traders will want to hold a long position in the Yen and that could be put on the break of the down trend line, however, be prepared for whiplash! It could go further down if any news is disappointing. (Click charts to enlarge)
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