The Yen is weaker On last Friday as GDP figures came in showing .4% growth in the last quarter, causing a nice rally in the Nikkei and subsequent Yen weakness as the inverse correlation held up. In addition, PM Kan increased the rhetoric surrounding possible Yen intervention, saying that he hopes other countries “don’t object” should they feel the need to intervene.
Risk appetite has the ability but apparently little desire to self-improve at the end of the week. The huge sucking sound of Chinese imports in to its nation’s ports helped relax fears over an impending slowdown in the pace of global recovery. A stimulus package from Tokyo also helped soothe investors’ nerves while the safe haven appeal of Swiss franc and Japanese yen came off the boil.
Most economists have had to admit recently that the string of global data is not as bad as they’d feared shifting focus away from talk of a double-dip recession. It has been a hard task to divert portfolio flows into the yen during this time, however, leaving the Japanese in something of a pickle. Currency intervention has been mulled but carries an unsure outcome. The government has not been shy in saying this and has dragged its heels over whether it should go it alone. Next week sees a showdown as politicians vote to decide whether Ichiro Ozawa should replace DPJ leader and Prime Minister Naoto Kan. In a Tokyo debate between the two today the thorny question of intervention was raised. Kan relayed that Japan would likely have to go it alone because both Europe and the U.S. would be content to see their currencies weaken to promote exports. He appeared to apologize in advance for the impact that yen selling would have on outside interests. The Prime Minister also unveiled an $11 billion stimulus initiative aimed at boosting consumption and employment and held out the prospects for a further package before year-end. The yen weakened per dollar to ¥84.32.
Friday is also a notable day for China because despite the sharp upward revision in Japanese Q2 GDP, it appears that it is then that it has moved into second place in terms of economic size. Japan’s Q2 GDP was revised to 1.5% from 0.4% as widely expected following the recent data that showed stronger capex. The dollar value of Japan’s GDP in Q2 was $1.295 trillion while China’s was $1.337 trillion.
In short, the Yen strength shall persist, due to Risk Aversion, However, the fear on the possibility of Massive Intervention from BOJ will slow down its appreciation, and any intervention will not be effective, unless both Euros and Dollars are both Stabilized near term resulting in the diminishing Carry trades and damping the imminent strength of Yen
TECHNICAL ANALYSIS
Daily chart with Trendlines
Daily Chart with Ichimoku
On the Daily Chart with trend lines, we can observe that this currency pair was moving down within the trend lines for the past Two months trading days.It moves down gradually toward the 83.25 on the immediate support level, breaching this may expose 79.70, which is the low recorded on 01, Nov, 1995.
On the Upside, breaking the Both upper trendline and above the 86.30 (50% Fibo) will resume its major Bullish Reversal , and immediate target will be 86.90(38.2% Fibo) and 87.80(23.6% Fibo) next.
On the Daily Chart with Ichimoku, we do observe the divergence on both the RSI and MACD, a warning signs for Major Reversal over the past few weeks but not being confirmed yet .
On the Upside, the next strong resistance at the Ichimoku Cloud bottom is near 86.20 (it is also the 50% Fibo), and next resistance at 88.45 , being the Ichimoku Cloud Top.
On the downside, this currency pair shall retest its recent low near 83.34, then resistance 3 near 83.20, follows by 80.00.
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