Quiet Monday Has Yen Testing Support

Now that the Bank of Japan has settled on its new QE plan, extension of the old one to the tune of ¥10 trillion more purchases of various types of debt of uniformly dubious quality, and short-covering in the Euro (AMEX:FXE) has subsided for the time being the Yen (AMEX:FXY) was able to resume its downward push below ¥78.1 versus the U.S. Dollar.

This level is extremely important and twice in the past two weeks the close on Friday was above that level, if only just barely like last Friday.  The Yen broke down during early New York trading this morning and never looked back, bouncing around near 77.8 for most of the day.  Again, I would not take today’s trading as meaning anything in particular until the Yen can manage a weekly close below the important 78.1 level.  Since this Friday will be the close for not only the week but the month and the quarter, what the Yen does here will likely determine its course for the next three to six months.

So, while the BoJ stands ready to do more QE if necessary, please remember that it has to be bigger in scope than what the Fed and the E.C.B. do for it to be truly short to medium term bearish for the USDJPY pair.  As for stocks, the Nikkei 225 (AMEX:NKY) looks very enticing at these levels and a strong Yen will support it moving back towards 10,000.

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Tom Luongo

About Tom Luongo

Tom Luongo is a professional chemist and self-taught economist who has been following and trading stocks for nearly 12 years. He has no formal ties to the financial industry and considers that an asset in his analysis of the interplay between monetary policy and capital markets.

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