BOJ Intervenes with Hefty Fund to Curb Yen Strength

The Japanese yen (JPY) was pushed back yesterday, as the Bank of Japan (BOJ) unveiled a new fund of approximately $100 billion in order to curb the rising strength of the island currency. With Wednesday’s move by the BOJ, the future of the yen’s strength is as yet undetermined, but will likely adopt a bearish overture in the next few days.

Forex Market Trends

Daily Trend no no down down down no
Weekly Trend up up down down up up
Resistance 1.4700 1.6750 81.80 0.8220 1.1080 0.9080
1.4540 1.6615 80.20 0.8150 1.0800 0.8890
1.4500 1.6430 78.50 0.8015 1.0600 0.8830
Support 1.4280 1.6365 75.94 0.7800 1.0315 0.8670
1.4230 1.6110 0.7550 0.9925 0.8610
1.3920 1.6000 0.7065 0.9700 0.8530

Economic News

USD – USD Moderately Lower as EUR Bounces

The US dollar (USD) was seen trading moderately lower at yesterday’s close after a day of mixed news from the global economy. Weak gains seen on the USD this week was offset yesterday after the stock rebounds led to minor returns of portfolio diversification. So far, this action has pushed investors back into the value of the euro (EUR), sapping safe-haven appeal from the greenback for the time being, though isn’t expected to last much longer.

Economic news over the last few weeks has pushed traders into a position of market pessimism, but trading yesterday behaved less so than many analysts had anticipated. Little news has emerged which put a dent in the amount of pessimism surrounding the forex market, traders are now eyeing the remainder of August news to determine what the third quarter may bring.

With a relatively light news day expected from the US today, traders will want to be on watch for volatility in the USD/CHF pair today with several reports from Switzerland expected in the early morning hours. Following yesterday’s better-than-expected durable goods orders figures; today’s data should help generate some volatility as investors assess unemployment. As the trend persists, any added negativity in today’s news will likely spark heavier aversion from risk. Where the CHF stands in this fight could be the deciding factor in how much the USD gains.

CHF – Swiss Franc Trading Higher as USD Dips

The Swiss franc (CHF) was seen trading with largely bullish results yesterday as traders shifted portfolios on recent outlook from the euro zone. Traders took cue from the SNB announcement over a week back and made a heavy push into the Swissie in the past week’s trading sessions. With no other news of bank interventions in Europe in sight, the CHF looks to be on the rise.

The largely bearish reports out of Europe yesterday have appeared to confirm many fears felt by traders who were anticipating a string of pessimism. Debt concerns remain a priority in the euro zone’s periphery, and the uncertainty in Europe is generating significant bearish shifts as European leaders struggle to contain the spreading crisis. Such moves are acting solely as a fuel to the fire lit beneath the CHF, assisting its meteoric rise.

On tap today, traders will witness the release of a less significant string of news out of the United States, with several moderate reports out of Switzerland and Great Britain. Many analysts are now looking to Germany to shore up much of the euro zone’s economic strength, with added responsibility falling to one of the few nations which has experienced very little economic distress until just recently. Should today’s reports show additional weakness in the US, or Switzerland, there is a good chance traders will purchase more francs.

JPY – BOJ’s $100 Billion Fund Stunts JPY Growth

The Japanese yen (JPY) was pushed back yesterday, as the Bank of Japan (BOJ) unveiled a new fund of approximately $100 billion in order to curb the rising strength of the island currency. Piling atop recent reports on Japan’s shrinking household spending figures, the publication of Japanese trade data has shown a decline in exports consistent with an overly strengthened yen. Despite a meeting between French and German ministers over economic cooperation last week, the Pacific nations appear to be rushing ahead with their bullish endeavors, contrary to market outlook among the European nations.

Japan’s economy has been much worse in its performance than it was expected to be just one month ago. Investors have been piling into the JPY en masse as its strength as a store of value gained appeal. As housing slumps, and as monetary adjustments take place in China and New Zealand, the Japanese and Swiss economies now finds themselves gaining the most from the blows coming down on Europe. With Wednesday’s move by the BOJ, the future of the yen’s strength is as yet undetermined, but will likely adopt a bearish overture in the next few days.

Crude Oil – Crude Prices Hold above $86 a Barrel

Crude Oil prices held mildly higher Wednesday as traders began to anticipate a US dollar (USD) downturn on speculation of another round of quantitative easing in the US. Data releases out of Europe and the US last week are also driving many investors into and out of safe-haven assets sporadically as market direction became less certain. The recent intervention by the Bank of Japan (BOJ) also upset market forecasters as the status of traditional safe-havens came under scrutiny.

The impact has been a rise in oil values from under $85 a barrel last week to a current price near $86.50 a barrel. An expected jump in dollar values due to this week’s risk averse environment has helped many investors ram up their short-taking positions on physical assets, but with the USD’s gains not materializing Wednesday, sentiment appears to have the price of crude oil holding steady, with gradual gains priced in. Should Crude Oil sentiment continue to flatten this week, oil prices may reach a decision point which forces a wide swing by week’s end; direction is unclear.

Technical News

The push to 1.4500 found willing offers and the falling resistance line from the May high has kept the pair trading in a relatively defined 500 pip range since late-July. This scenario could change this week as the pair encroaches on the bottom of a triangle pattern that runs underneath the July and August lows at 1.4190. A move below this trading range is favored as both daily and monthly stochastics are declining. A break here could test the rising trend line from May 2010 and may have long term technical ramifications. To the upside last week’s high of 1.4515 will serve as initial resistance followed by 1.4700.
Following a failure to move below its 200-day moving average Cable has underwent an impressive run to the 1.66 level. However, three failed attempts to close above the 1.6540 level points to sterling weakness. The pair also looks to be oversold as daily, weekly, and monthly stochastics are all turning lower. An initial move lower could run into support at the 20-day moving average at 1.6370 followed by the August 11th low at 1.6110. A deeper move could test the July low at 1.5780. Should the momentum continue to the upside initial resistance is found at 1.6580 with the most likely target at the April high of 1.6750.
Last week the pair briefly moved below the March low and the 76 yen level but the dollar was quickly bid and the daily candlestick formed a doji. While often a sign of an impending reversal a doji by itself is not enough to change the technical picture. Bias remains to the downside and a close below 76 would signal further declines in the pair. A lack of support on the long term charts makes it problematic to forecast a target but the big round number of 70 yen stands out. Should the doji pattern hold and a reversal ensue; the pair will encounter plenty of selling opportunities with the most likely of entry points found at 78.50, 79.50, and 80.20.
A rebound in the pair made it as high as 0.8015, just above the 50% retracement level from the May to August move. This move looks like it may have more room to run as weekly and monthly stochastics are rolling higher. Additional resistance comes in at the falling trend line from the February high at 0.8150. A break here would target the 61% Fibonacci retracement at 0.8220. However, traders should remember the long term trend is to the downside and support is found at 0.7800 followed by 0.7550.

The Wild Card

As quick as the price of gold goes up the price tumbles even faster. Yesterday gold prices fell 5.6% with heavy volume seen in the futures market. Gold prices have continued to fall this morning. Forex traders should note the initial support for spot gold rests at $1,723 followed by $1,670. To the upside resistance is located at this week’s high near $1,912.

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