Bear Market Ahead For The Yen?

OptionsXpress
updated | Author's Website

Monday, November 5, 2012

Better than expected U.S. Non-Farm Payrolls figures for October (+171,000 jobs) have taken some of the flight to safety buying out of the Yen on Friday, sending the currency to lows not seen since late April. With the Yen starting to weaken, some analysts believe that the currency intervention to help weaken the Yen by Japanese officials could be more effective now that the trend seems to be favoring a weaker Yen.

Fundamentals

After months of unsuccessfully trying to pick a top in the value of the Japanese Yen vs. the U.S. Dollar, many speculators seem, once again, ready to test the short side of the market on the belief that the Bank of Japan (“BOJ”) is serious in its statement to increase easing measures to help stimulate the economy. The BOJ may aggressively try to rekindle inflation by printing nearly unlimited amounts of Yen to help weaken the currency. A strong Japanese Yen has been the bane of Japanese manufacturers whose overseas earnings have been hit due to an overly strong currency. Global economic weakness has hampered past attempts by Japanese officials to weaken the Yen, as many speculators have looked towards the Yen, rightly or wrongly, as a “safe haven” investment during periods of economic uncertainly. Though trying to stay short the Yen has been a difficult endeavor for many traders, we are starting to see some technical indication that the Yen may finally be ready to fall. Prices are now below major moving averages and chart patterns are leaning towards the bear camp for the first time in nearly 10-months.

Technical Notes

Looking at the daily continuation chart for the Japanese Yen, we notice prices trading below both the 20 and 200-day moving averages. In addition, the formation of a “bear flag” technical pattern seems to have been confirmed, as prices are now trading at a 6-month low. The 14-day RSI is weak, with a current reading of 31.08. The April 20th lows of 1.2233 look to be the next support level for the December futures with resistance found at the October 30th highs of 1.2640.

Mike Zarembski, Senior Commodity Analyst

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