FXstreet.com (Barcelona) - The relentless weakness in the
Japanese yen continues to push JPY-based crosses to fresh highs, as
demonstrated by the recent pronounced ascent of the USD/JPY and
EUR/JPY, trading in the proximities of 89.00 and 120.00
respectively.
… It's all about risk
The impressive bearish trend in the yen sparked in mid November,
where it was trading in the vicinity of 79.20 against the
greenback. Back then, the Japanese elections were looming and the
(former LDP candidate) now PM S.Abe was increasing the selling
pressure on the yen via a plethora of warnings against the BoJ with
a clear target: defeat entrenched deflation. A massive plan of
fiscal stimulus was announced last week, and it all points out to a
new and higher inflation target of 2.0% to be announced at the next
BoJ gathering next week, all against a backdrop of promises of
further and bold easing.
Yen bears have found extra support in the late risk rally, ignited
last week after the ECB has practically ruled out further rate cuts
in the very near term, along with positive (?) prospects for the
euro zone throughout the present year, encouraging traders to
accelerate their outflows from the safe havens.
The yen is navigating extremely oversold levels, despite today's
markets bias towards risk aversion. At this juncture, and ahead of
the next BoJ monetary policy meeting, market participants should
bear in mind how much of this late talk involving a weaker yen is
already priced in by the markets, especially if investors take into
account the past countless attempts by Japan to curb the deflation,
and the ineffectiveness of previous easing cycles. The FX community
needs to believe this time is different, and in such case scenario,
key resistance levels arise in the horizon against its American
counterpart at 90.00, 95.00 and 100.00
Plotting against the actual JPY weakness we find the upcoming
second part of the US 'fiscal cliff', dangerously combined with the
deb-ceiling talks, which would give both the USD and the JPY some
extra buying pressure. In addition, as the Japanese fiscal year-end
gets closer, the usual repatriation of yen flows would surely play
its part.
In technical terms, expert Karen Jones at Commerzbank argues
"USD/JPY has not quite managed to clear the 89.30 30 year
resistance line - we have a 13 count on the daily chart (TD
sequential) and divergence of the daily RSI - both warn of likely
profit taking here. We would allow for some slippage to 87.17 then
the 85.84 2-month uptrend".