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Time to Sell Yen


More than a year after our inverse head and shoulders didn't materialize in USD/JPY, we may have finally seen the bottom in this pair. USD/JPY was already in a nascent uptrend when the 8.9 magnitude earthquake shook NE Japan and, along with a number of aftershocks and resultant tsunami, caused extensive damage to Japan, in terms of livesl lost, as well as in terms of real and potential economic output. The yen rallied against all major currencies as Japanese investors repatriated JPY, but this is most certainly not a bullish development, particularly so if we take into account the possibility of intervention by the Bank of Japan. While unilateral intervention has been shown to be ineffective in the majority of cases, the international community has offered Japan support in anything that may be required. It is not a far stretch to consider the possibility of multilateral currency intervention in the face of this disaster. Combined with the damage to economic output due to production and trade disruptions, and with the fact that USD/JPY was already in the beginning stages of an uptrend prior to this catastrophe, we believe this makes a strong case for bullish outlook on USD/JPY. It should also be mentioned that from a technical perspective, USD/JPY dropped to the bottom of the triangle formation on repatriation, but did not breach it, adding a technical perspective to our case.

Daily chart of USDJPY

<< JPY Intervention GFT Hacked >>

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