Weak U.S. economic data is triggering a flight-to-safety rally, driving investors into the March Japanese Yen. After meandering inside of a tight range for several months, the Yen finally broke through the November 18 top at 1.3101, sending a message to Japanese officials that speculators may be preparing to mount a challenge of the October 31 intervention high at 1.3279. So far Japanese officials have been silent on the matter, but there is no doubt that the rise in the Yen is a concern especially since the high priced currency has wreaked havoc on the country’s export industry.
Like most interventions, the October intervention was destined to fail. Depending on its size, it just takes time for the market to absorb the move. In 2011 the Japanese government made two major interventions. The first occurred in March 2011 shortly after the Tsunami. This was absorbed by July 2011, or after four months. The last intervention was on October 31, 2011. If it follows the same four month cycle then by the end of February the Japanese Yen may be challenging the October top at 1.3279.
Long speculators should be aware that although the technical picture on the charts suggests no visible resistance, the Japanese government is most likely preparing a series of “verbal” interventions in order to scare weaker longs out of the market.
Besides moving to the Yen for safety, overnight traders bought the currency after the Small Business Confidence Index in Japan moved from 45.6 in December to 45.7 in January. Gains may have been trimmed by the news that Japanese housing starts fell 7.3% (YoY) in December. Finally, Japanese Finance Minister, Jun Azumi warned that he would take “decisive steps” if the movement in the Yen becomes too volatile or if prices rise too rapidly over a short-term time period.
Technically, the former main top at 1.3101 is now the new support. If this price level fails, then the next support level is 1.3023.
