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JPY WEEKLY OUTLOOK: RISK APPETITE, REPATRIATION SENTIMENT, DAMAGE COSTS

|Includes:CurrencyShares Euro Trust ETF (FXE), FXY, ICI, UDN, UUP, YCS

 April 11-15 Weekly Japanese Yen strategy points for traders of forex binary options, standard spot market products, and ETFs

Japanese Yen Bias: Bearish

Fundamental Forecast for Japanese Yen: Bearish

  • USDJPY: Worsening Japanese fundamentals, rising risk appetite provide fundamental support for rising trend, 86 is the main resistance zone before further highs can be expected.
  • USDJPY remains firmly in its Bollinger Band Buy Zone (see below), suggest more near term upside once it gets above resistance of its 50 week SMA around 85
  • USDJPY: Try to defer new long entries until pullbacks to ~83.50 area
  • Japanese Yen slips back from a rally founded on renewed earthquake fears
  • Bank of Japan: ¥1 trillion in post-earthquake aid loans – could liquidity drains turn Japan into net US Bond seller?
  • BOJ policy to remain highly accommodative

The Longer Term Technical Picture for the USDJPY

Note the below USDJPY weekly chart:

ScreenHunter 03 Apr 10 00 31  JPY Weekly Outlook: Risk Appetite, Repatriation Sentiment,  Damage Costs

USDJPY WEEKLY CHART COURTESY OF ANYOPTION.COM   03apr10 0031

The key take away points include:

  • An ongoing break above the 84 zone, which has been resistance since December 2010
  • Price testing key resistance around 85 of the 50 week SMA (red) and upper Bollinger Band
  • Momentum firmly to the upside as price remains in the upper Bollinger Band Buy Zone (area bounded by upper red and blue Bollinger Bands)

The Japanese Yen continued to depreciate in April, with the USD/JPY advancing to a fresh yearly high of 85.51, and the low-yielding currency may face additional headwinds in the coming days as central bank curbs its outlook for future growth.

For now, market participants are scaling back speculation for a huge wave of repatriation as the Bank of Japan increases its efforts to support the economy, and currency traders may continue to push the yen lower over the near-term as they increase their appetite for risk.

Deteriorating JPY Fundamentals May Also Hurt the USD, EUR, and GBP, Slowing The JPY Decline

However as the costs of the damage continue rising, both from radiation and production cuts, it’s possible that Japan, which has been a huge liquidity exporter to the US (i.e. massive US bond buyer) might become a net seller, with possibly dire consequences for the US. If demand for US bonds drops, that means higher US bond yields, US mortgage yields, and further damage to the key US banking and housing sectors

The same threat holds for other major sellers of sovereign bonds to Japan, like the EU and UK. All three of the major Western economies risk additional hits from as Japanese production slowdowns create similar drops in production elsewhere that depends on Japanese raw materials, parts, or finished goods. These include steel, silicon wafers, machine and car parts, and assorted consumer electronics.

The Bank of Japan said the real economy “is under strong downward pressures” following the slew of natural and nuclear power disasters, and offered JPY 1 trillion in one-year loans bearing a 0.1 percent interest rate in an effort to aid the rebuilding process.


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