Stock Market Weakness Pressure USD JPY

The Japanese Yen is tradinghigher against the U.S. Dollar as global equity markets declined overnight,pressured by reports showing that the Euro Zone’s biggest economies may beslowing.

The Japanese Yen is tradinghigher against the U.S. Dollar as global equity markets declined overnight,pressured by reports showing that the Euro Zone’s biggest economies may beslowing.

Increased risk aversion inthe market is the primary cause of the weakness in the USD JPY. Traders feelthat a slow down in Europe will mean weakerperipheral nations will struggle fulfilling their budget requirements. This maylead to more borrowing and increased budget deficits.

Despite the overnightstrength, it looks as if the Dollar will close the week higher versus theJapanese Yen. However, weakness in the Euro Zone has helped the Yen climb toits strongest level in almost two months against the Euro.

While stock market pressurethis week has taken care of the Yen’s strength versus the Dollar, Japan’s EconomyMinister Banri Kaieda said the country can’t combat gains in its currencyalone. The Yen’s gains against several major currencies this week are primarilya reaction to the decline in risk sentiment this week.

Traders are still talkingabout what the Bank of Japan can or should do about stemming the gains in theYen since intervention didn’t work.

Technically, the USD JPYturned the main trend up on the daily chart earlier in the week, but slammedinto near-term resistance in a retracement zone at 82.10 to 82.54. This zonewas created by the short-term range of 83.97 to 80.24.

A break through this zonecould trigger even further gains with 83.08 to 83.76 the next upside targetzone.

A hard sell-off in U.S. equitymarkets today could send risk averse traders into the Japanese Yen at theexpense of the Dollar.