From the April 01, 2012 issue of Futures Magazine • Subscribe!

Tech Talk: The rising sun

The Japanese yen recently has awakened from its seven-month slumber below the 80-handle after making fresh post-World-War-II lows at 75.50 in 2011. The USD/JPY held below a long-standing trendline dating back to the July 2007 highs above 123 before finally breaching this barrier in early February. The move suggests that a significant low may have been put in place and the outlook is now weighted to the topside. 

Year-to-date the yen has fallen more than 5.7% against the greenback as improving dollar prospects, the re-emergence of the carry trade in late 2011 and continued concerns about further currency interventions from the Japanese Finance Ministry put on downside pressure. The breach of a four-and-a-half-year-long trendline is girded by other key technical factors that support our bias. The yen’s rally in February was the largest since December 2009 with the 20-day rate of change as of March 2 at its highest level since February 2009. At that time, the USD/JPY posted its largest rally of the year, taking the exchange rate nearly 13% higher through April. A high rate of change further supports our bias as it is typical of trends that are near their middle rather than their terminus. 

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If the 2011 highs at 85.50, the next upside target, are overcome, the USD/JPY will have held the 2011 lows and broken the high of that same year, a classic technical indication of a clear break of the previous downtrend. As such, this will remain our primary target in the medium-term, with a breach above this level eyeing subsequent topside targets at the 100% Fibonacci extension taken from the February 1st and 28th troughs at 85.65, the 161.8% extension just above the 89-handle, and the 261.8% extension at 94.75.

Michael Boutros is a currency strategist at DailyFX. 

About the Author
Michael Boutros

Michael Boutros, Currency Analyst for DailyFX.com is a Technical/Fundamental Analyst specializing in the FX markets. E-mail: mboutros@fxcm.com.

Twitter: @MBForex
WEB: www.DailyFX.com

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