The December Japanese Yen fell sharply overnight on speculation that Japanese authorities might have intervened again in the foreign exchange markets. Although Japanese Finance Minister Yoshihiko declined to comment on whether authorities   intervened, Yen market players feel the Bank of Japan was active in the market.  Some traders believe that the reason behind the plunge was a rumor that Bank of Japan Governor Masaaki Shirakawa may resign.

As mentioned yesterday in my Forex commentary this move by the BoJ, should it prove to be true, was not a surprise, “The break back to 50% of the ‘Intervention Rally’ could be a buying opportunity for bullish Dollar/Yen traders, but it is going to take another round of intervention to get the market moving higher. Since Japanese officials intervened during the opening of the Asian markets, traders will be watching tonight to see if they do it again.”

Technically, the Japanese Yen was hovering around a key 50% level last night at 1.1863 when the suspected intervention took place. The subsequent selling pressure dropped the Yen a little beyond 50% of the last short-term rally at 1.1767. Downside momentum could take this market through the last main bottom at 1.1648, thereby solidifying the start of the down trend.

December Treasury Bonds are trading higher this morning after surviving a small break on Thursday back to a 50% price level at 132’12. This morning they are testing the Fibonacci level at 133’04. Regaining this level could trigger even further upside action to Thursday’s high at 133’22. Even though the Fed gave the green light to buy T-Bonds this week, no one said it would be easy and go straight up like in August. Trade the trend, but watch your entries and exits.

T-Bonds soared early Thursday as investors took risk off the table. Traders were encouraged to seek shelter in lower yielding assets after Europe reported weaker than expected manufacturing numbers.

The Treasurys topped shortly after the opening as equity markets bottomed, signaling a clear asset allocation play. Profit-taking was the main reason behind the T-Bond sell-off. This market had rallied substantially since Tuesday when the Fed hinted at additional quantitative easing. Another reason for the break may have been short-term overbought conditions.

Equity markets are trading better overnight, but it looks more like a technical bounce from support rather than outright bullishness. The December E-mini S&P 500 was under pressure early Thursday morning. Intraday oversold conditions coupled with the inability to break this week’s low at 1117.00, however, forced shorts to take cover, fueling a rally back to 50% of the week’s range at 1130.50.

The rally eventually died at 1132.50, but served as another reminder that any weakness will continue to be viewed as a buying opportunity until significant support is violated.   

Although this week’s low served as support this morning, the key downside target remains an uptrending Gann angle at 1116.50 today. Combined with the low for the week, 1117.00 – 1116.50 is an important support cluster.

Based on this set-up, a violation of this area is likely to trigger an acceleration to the downside with 1103.50 the next target.

I’m still looking counter-trend because of the reversal top at 1144.00 from earlier in the week. This developing bearish pattern may eventually trigger a correction back to 1088.25 or 50% of the last rally.

Today 1119.75 will be another area to watch. A close under this number will form a weekly reversal top. This could mean more selling pressure next week. Keep an eye on this price especially if the market is testing it late in the trading session.

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