The Japanese yen was the center of attention through the Asian morning Wednesday, following on from decent two-way action seen during the overnight U.S. session. Dollar-yen fell early in the session, to trade a low of Y86.85, supported by some short-covering in yen positions, following the overnight drop to Y86.90. The pair then got a lift ahead of the Tokyo fixing, a move led by Japanese banks and followed by U.S. and U.K. accounts, which carried it up to Y87.20. After broad-based yen selling since late November, the yen was primed for a short-squeeze, traders said, arguing that recent price action likely did not change near-term prospects for the Japanese currency. “The correction is understandable given that the currency pair has risen from below Y80 since mid-November,” commented local trader. “Consensus believes that the yen’s downtrend is intact and supported by the determination of Japan’s newly-elected government to aggressively push fiscal and monetary policies to revive its fight deflation and revive its anemic economy.”
There was a brief pause when the fixing demand fizzled out but demand for euro-yen cross then revived dollar-yen’s fortunes, the cross rising to a Y114.40 high from Y113.61, pushing dollar-yen up to Y87.52. By the end of the morning here, dollar-yen was holding near the morning high at Y87.37 compared with a U.S. close of Y87.05, while euro-yen was at Y114.20 after closing at Y113.86 overnight. For dollar-yen, tech analysts at UOB noted that yesterday’s daily close was the weakest since June last year and, coupled with overbought RSI and rapidly weakening MACD indicators, suggested that further profit-taking is likely ahead. “However, after such a strong rally, the downside target appears to be limited to Y86.45, followed by Y85.65. Any move back above Y88.48 will indicate a period of choppy range trading at these higher levels.” The pair peaked at Y88.40 last Friday, the highest levels seen since July 2010. Trader focus remains on a January 22 monetary policy meeting of the Bank of Japan, at which the Bank may consider adopting a higher inflation target or may take other steps to try and spur a moribund economy, expectations being that those steps may have the side-effect of weakening the yen.
EasyForexNews Research Team