Friday 14 June 2013

Technical Notes

The Japanese Yen has been on a roller coaster ride in recent days going from a maligned currency to one of the hottest over the past month. Yesterday JPYINR settled with the sharp gain of +2.87% at 61.62 as support was seen from the Rupee weakness also in past couple of days. Today rupee recovered a large part of its losses, helped by dollar sales from a corporate and exporters, but disappointment over lack of any specific measures from the government prevented a further rise. Finance Minister P. Chidambaram's attempt to win back market confidence by pledging new reform measures and talking up the economy disappointed investors. A sell-off in global markets had hurt the domestic share market and the rupee earlier but losses were limited on hopes that the finance minister would announce some steps to prevent the rupee from sliding towards record lows by attracting foreign capital. Domestic shares, however, fell for a third consecutive session to close at their lowest level since April 17. Meanwhile Japanese stocks plunged over 6 percent to bear market territory and Asian shares slid to nine-month lows, as investors rushed to exit their positions on prospect of reduced stimulus from central banks. The question now becomes whether markets are truly optimistic about the fortune of the Japanese economy, or if the recent bullish sentiment is simply the result of the Yen being oversold. Certainly, markets were expecting the BoJ to fire up the printing presses, but yesterday's announcement of no further expansion of the monetary base in Japan in the near-term came as a surprise.
Japanese Yen futures continued their recovery, after the Bank of Japan decided against expanding its stimulus efforts. The BoJ sees the Japanese economy improving and would rather keep the possibility of additional easing in its back pocket in the event that it is needed down the road. It is important to note that the central bank is not eliminating stimulus, but rather not expanding it any further. The BoJ believes that it can achieve its current target inflation rate of 2 % by boosting the monetary base by ¥60 trillion to ¥70 trillion annually. The Yen seems to once again be gaining traction as a defensive currency, and may steal some of the greenback's thunder in this regard. There is a slew of important US economic data today and disappointing US data could drive the Yen higher. Regardless, the data is expected to add to market volatility.

Technical Notes
USDJPY slipped below 95 for the first time in over two months and all it took was a six percent collapse in Japan’s benchmark Nikkei 225 equity index. The benchmark opened gap down and extended the incredible bearish drive to an incredible 20 percent collapse in a mere three weeks. If the Bank of Japan’s (BoJ) primary goal with its stimulus regime is to revive inflation and eventually reach a 2.0 percent target, they can still find success. However, they are causing severe damage along the way. Stable financial markets are an unspoken mandate for central banks, yet the BoJ’s efforts have generated severe fluctuations. The highest, sustained level of volatility in equities since 2008 and sharp increase in JGB yields (a serious problem for the government and pension funds) is collateral damage they simply cannot endure. The only option from here is more stimulus. ‘How’ and ‘when’ are key to preventing a yen cross cave in. Prices closed above the 100-day moving average and are well above the average. The recent gains have resulted in overbought levels on the RSI, which could curb further advances in the near-term. Now JPYINR is getting support at 60.955 and below same could see a test of 60.295 levels, and resistance is now likely to be seen at 62.31, a move above could see prices testing 63.005.



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