The December Japanese Yen is recovering some of its loss from Wednesday this morning. The previous day’s session produced one of the market’s largest ranges in months following a series of low volatility moves.
The weakness began after an early attempt to rally through a pair of tops at 1.3158 and 1.3180 failed. As the market rallied close to these numbers, the threat of an intervention by the Bank of Japan may have been too much, encouraging selling and triggering a sharp sell-off. Another reason for the sell-off may have been the increase Treasury Bond and Treasury Note yields in the U.S. The current rally in the U.S. equity markets has led to an asset allocation shift that is encouraging the buying of equities and the selling of Treasury instrument. Because of their inverse relationships, yields rise when Treasury prices fall.
Daily December Japanese Yen featuring the Gann Swing Chart
Overnight the Bank of Japan released the minutes from its September 6 and 7 meeting. According to the minutes the central bank said it would consider further monetary easing should conditions warrant it. In addition, members discussed the sovereign debt situation in Europe as well as an economic slow down in the U.S. Member concluded that there was too much uncertainty in Europe to gauge when the threat to global financial stability would end. In addition, member concluded that the U.S. economy’s weakness would be prolonged.
Despite the volatile trading activity, the December Japanese Yen remains rangebound with a top at 1.3180 and a bottom at 1.2860. Despite recent demand for lower-yielding assets, the Yen could not attract enough demand to rally. This was a direct reaction to the threat of an intervention. Should U.S. Treasury yields continue to rise, then look for the Japanese Yen to weaken against the U.S. Dollar as traders will sell the currency in pursuit of the best return on investment.
