Speculators Jump Off the Bear Train and Kuroda is the Only Passenger

by on February 28, 2014 5:12 am BST

Speculators are losing faith in the Bank of Japan’s ability to keep weakening the yen as the demand for the safe-haven currency is back in demand, gaining 3.4 percent year-to-date. After declining the most last year than the previous 30-years, the yen has seen bearish bets trimmed by over 60 percent since the peak-decline in December, according to data from the Commodity Futures Trading Committee (CFTC).

The BoJ Governor Haruhiko Kuroda is looking to expand specialized lending and asset purchases to ¥70 trillion in the wake of weakening fundamentals, but speculators are doubting its effectiveness. “Unless Japan comes up with specific measures to prove it will do whatever is necessary to exit deflation, it’s hard for hedge finds to jump on the weak-yen bandwagon,” said Naoki Iwami, CIO at Whiz Partners Inc.

The USDJPY has flirted with 102 over the last several sessions in the risk on-again, off-again sentiment, while price action as seen a range between 102.60 and 101.80. There has been somewhat of a trend where the yen sees a lot of demand throughout the Asian trading session with more dollar strength seen coming into the US trading session. However, with US equities at a standstill and unable to break to new highs, the dollar-yen is at risk for another sell-off.

The 4H, 30-day chart shows price action closing below a symmetrical triangle to the downside. With the inability to close above the trend line support, the dollar-yen will trend lower to price action support at 101.60, which has held well recently. However, market participants were unable to get the warm-and-fuzzies from Fed chair Janet Yellen, and there still remains to be no catalyst for risk to break to new highs. The USDJPY will most likely test a key support level at 101.35/40. A break below this key level will give the pair a great chance to hit the current target of 99.75.

Resistance still remains near 102.60.

4H Chart of USDJPY

4H Chart of USDJPY