Forex Marketz Daily Forex News – Fully Markets Update
The almighty dollar has risen to levels not seen since 2008 versus Japan’s yen. Do not expect this to last and here is why.
The pace of this rally was way too explosive and happen way to fast. We are now due for a bit of a pullback. Yesterday, the USD/JPY touched a high of ¥110.08. The current rise has been driven by investor expectations for a Federal Reserve (Fed) rate hike sometime in the first half of 2015 as well as weakening economic data emerging from Japan. Since then the market has dropped to ¥108.708 in Asian trading today. See the below chart as we are trading back below the key technical level of ¥109.50 and below ¥110.
We have gotten poor household spending as well as not very good industrial production numbers out of Japan this week. This is the continued lag from April’s consumption tax hike. Household spending dropped 4.7 percent on a yearly basis and industrial production fell 1.5 percent.
While the Bank of Japan (BOJ) wants a weak yen, one should be very careful for what they wish for. The new dollar to yen strength has made certain members of the BOJ as well as government members worried that the fresh weakness in the yen will have a negative impact on prices. There is a concern that too much yen weakness will make it hard or firms to make purchases of materials overseas. This is the polar opposite of the same officials who wanted the weak yen to boost exports and support the economy. During September’s BOJ remarks, Governor Haruhiko Kuroda dismissed any concerns about the USD/JPY price as well as yen weakness.
Let us look at some technical levels for a bit. You would be bold to call a top at this level. Especially on a multi-week basis. We are hearing more negatives from BOJ and government officials about the weaker currency and we would see the USD/JPY pull back to ¥105 to ¥106.50 by year end, but as we are near the ¥110 level, and expect to break this level once again, this will calm fears. However, government officials will continue to try and calm things down. We could see the technical levels at ¥110 and near ¥112.50, which we faced earlier, capping gains afresh.
What does this mean? This is not the right time to load up on long positions. We could see the USD/JPY pulling back towards ¥107.50 in the short term. If today’s movement is any indicator, then that future could be in the cards. Still, the sky is the limit. The U.S. Dollar looks very strong. We could be seeing some consolidation near ¥110, but there is no clear bearish reversal sign yet. We also have economic worries in China and the impending Fed rate hike next year. This means the yen could continue to weaken in the long term.
