Wednesday, August 3, 2011

Yen Intervention

I have always been a skeptic of forex interventions, especially unilateral. But there is some hope about this latest move by MOF and BOJ to weaken Yen tonight. Here are a few reasons.

1. Fundamentals. First of all, this intervention comes in very hard economic times for Japan. Not only is Japanese economy continuing to suffer from deflation and slow growth, but it has been exacerbated by recent quake and nuclear crisis. Japan's demographics are getting increasingly worse, and their consumption power is dwindling fast. To compound the problem, world economy is slowing down, putting Japan's export economy at high risk.

2. Technicals. Before many of you say: "stop this voodoo chart magic". Forex traders look at charts as a holy grail. One can not deny that a double bottom has now developed on USD/JPY chart. This is perhaps a total coincidence (I doubt), but a major reason why JPY is diving hard as I type. The last time Japan intervened was in collaboration with other central banks. This time is unilateral. JPY traders are ignoring this very important fact because they do not want to fight the charts. Look for USD/JPY to build on gains in the coming days. Very important will be a backtest of 78.90, which is last intervention base. It is in progress as I type. Should the price close above 78.90 on daily chart, USD/JPY shorts beware! Let's see what happens...

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