The USD JPY broke sharply lower on Wednesday despite a report showingthe Japanese economy contracted at an annualized rate of 15% during thefirst quarter. This number was better than economists’ forecast whichmay be one reason for price improvement today. The main reason for the rally in the Yen may be speculation that the Japanese economy is reaching a bottom.
The USD JPY broke sharply lower on Wednesday despite a report showing the Japanese economy contracted at an annualized rate of 15% during the first quarter. This number was better than economists’ forecast which may be one reason for price improvement today.
There were reports today that aggressive buyers were positioning themselves in the Yen for a bottom in the economy. Some speculators feel the economy cannot get worse than it already is and are betting on the start of a recovery.
The weakness in the USD JPY and the strength in the equity markets do not make sense at this time. It seems one side has to give. Recently investors have been selling Yen to finance the bull market, but today’s action may be indicating that they are not supporting an equity market rally at this time.
Another reason why long traders have to be careful is because of comments from the Bank of Japan this week. The BoJ issued a statement expressing its concerns about excessive volatility in the Yen as well as current lofty price levels. Gains may be limited to the upside as traders remain hesitant to jump in front of the BoJ.
Trend traders should note that the current downtrend will be reaffirmed by a trade though 94.54. This should put the USD JPY on target for a test of a major 50% price at 94.28. A short-covering or profit-taking rally could develop following a test of this level.