G7 statement & Jap mkts closed = Yen may surge

USD’s long-term prospects do not look too bright at the moment,
with IMF chief alerting policymakers to be ready for a US slowdown.
But what about USD’s outlook at present? With the G7 urging for the
Chinese yuan to rise, USD could experience a short-term fall (perhaps
till we hear hawkish comments from Fed officials). But many diplomats
know that China must not be rushed into appreciating its currency too
much too fast as that could backfire and harm its economy. With IMF
chief Rato also saying that US, Euro and Japan’s interest rates
should rise (although at different pace), that should spell good news
for US dollar bulls especially. But let’s not forget…

the G7 leaders also saying that the Japanese yen should be rising
as Japan’s economy is healing. With that in mind, the yen could show
some short-term strength. Let’s take a look at the currency futures
data.

As of last Tuesday, futures data shows traders increased their
Japanese yen shorts by 43% to another record level. With the Japanese
traders on holiday on Monday, their long USD/JPY positions could very
possibly be exposed to a lot of risk as the G7 has brought up the yen
after all, albeit after the formal meeting. USD/JPY has, after all,
failed to take out the 118.00 level despite three attempts. That is a
bearish sign I think. If USD/JPY does not fall on Monday, it could do
so on Tuesday when Japanese traders rush back to work.

While we are on the yen, the other pair of interest is the
NZD/JPY. NZD/JPY has risen by 400 pips during the past week. It is in
serious need of some retracement, and the timing couldn’t be any
better than now. Technicals also support a retracement for this pair
as the resistance of its upper channel line lies around 78.30. But
watch out for possible Kiwi strength as it could continue to strengthen
against Aussie due to Australia’s Treasurer Costello’s comments that

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