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Forex Chart of the Day Currency In Focus: Japanese Yen

The Japanese yen has been strengthening for some time as the US dollar has been weak so it has been receiving safe-haven money flows that otherwise might go to the Dollar, were it not for the US debt-ceiling debate.

While it is no secret that the Japanese would prefer to have a weaker currency to help encourage their exports, the Bank of Japan will be reluctant to do so with the uncertainty of the debt ceiling debate. Should the US resolve the issue, then we could envision a scenario where the BOJ attempts to ride the wave by adding intervention at that time.

But for now, the trend is clearly higher for Yen vs. USD, and under normal circumstances we would be looking at short-term trades to take advantage of any Yen weakness by selling retracements.  However, trends do not go on forever, so a more likely scenario is that the US resolves it’s issues and the BOJ adds a helping hand to get the Yen to weaken.

There is some economic data due out on Thursday, July 28th for Japan, including the jobless rate figures, CPI data, and industrial production figures.  These numbers have been so distorted because of the effects of the natural disasters that it is possible that the data could come in better than expected.

The last time the Dollar was this low vs. the Yen occurred on the day the Japanese markets opened after the natural disasters.  The super-spike down that occurred was reversed by coordinated G-7 monetary intervention, yet we approaching those lows.  While it is never a good idea to fight the trend, this may be an instance where it makes sense.

Bias:  Bearish

Trade:  Buy USD/JPY on a push down to 77.30, stop at 76.25, just below the all-time high for Yen vs. USD.  Profit target: 79.75.  Reward/Risk ratio: 2.5:1