After weeks of speculation, the Japanese government finally stepped up and intervened against the Yen, driving the currency sharply lower. The drop in the December Yen was the biggest decline in almost three years and represented a major commitment to fight gains that threaten exports.
Daily December Japanese Yen Pattern, Price & Time Analysis
Bloomberg said that Japanese Finance Minister Jun Azumi ordered the intervention because “speculative moves” in the Yen failed to reflectJapan’s true economic fundamentals.
Although the move against the Yen was aggressive, traders doubt the intervention will have a lasting effect because of failures in the past. Previously, following an intervention, it was just a matter of time before traders regrouped and regained the losses created by the intervention. Because of uncertainty in today’s financial markets, the strength in the demand for safe-haven currencies like the Japanese Yen is too much to overcome. Even though the intervention appears to have done the job in the short-run, there is no sign the move will have a lasting effect.
Technically, after reaching a postwar high at 1.3264, the December Japanese Yen plunged sharply lower. The fast move to 1.2582 represented nearly a 50% correction of the April to October range. Based on the range of 1.1732 to 1.3264, a major retracement zone was created at 1.2498 to 1.2317 with the former number representing the major 50% level.
Following an intervention, a market becomes oversold rather quickly and reverses at least 50% of its massive break. In this case, based on today’s range of 1.3264 to 1.2582, traders should watch for a “snap-back” back rally to at least 1.2923 to 1.3003. Fresh selling pressure may reemerge in this zone, setting up a possible test of the low. However, it may take another shot of intervention to drive it through 1.2582. In addition, sellers may try to push the market lower into the 50% to 61.8% zone to complete the major retracement.
Traders should look at today’s activity as an event rather than a change in trend. This means look for a volatile two-sided trade.
