Taper Causes Madness in FX, USDJPY at 5 Year Highs

by on December 19, 2013 4:45 am BST


USDJPY hit a five-year high as the Federal Reserve tapered $10 billion of their $85 billion in monthly asset purchases. Risk assets found a way to continue higher in convincing themselves that the economy is better. The swings in the currency market were wide and wild.

“With the reduction in quantitative easing, the Fed has bought a ticket to enter into a normalization of monetary policy,” said Masato Yanagiya, head of FX and money trading at Sumitomo Mitsui Banking Corp. However, there is $75 billion, still, in monthly purchases, and Ben Bernanke reassured near-zero interest rates for a long time to come – that’s not exactly normal.

The dollar index seen a $1 change in price, sinking to 79.5, only to reverse and end higher. Price action is trading below 80.80 resistance, but it will be left to traders to determine whether or not sentiment remains changed over the longer-term to see a substantial rally in the US dollar opposed to short covering. Upward target of 81, while a pullback to 80.45-50 is likely.

4H Chart of DX

4H Chart of DX

The euro traded through 1.38 on the taper news and then fell 150 pips on the dollar rally. On the 4H chart, there is a eurodollar downside target of 1.3619 with resistance at 1.3675 and 1.3690-1.3700.

4H Chart of EURUSD

4H Chart of EURUSD

The USDJPY hit a five year high trading through 104 to 104.35 before pulling back. In “USDJPY & USDCHF Technicals:12/8,” I mentioned “price action is currently where the USDJPY seen a large pullback the last time this current area was breeched. The 2013 high was made and was sold. Price swiftly fell from 103.72 to under 94 in a month’s time. However, a break through the upside leaves room for USDJPY to advance to 105 before seen the next level of significant resistance.”

Price action on the 4H is trending in a channel with resistance at the new high. Support is located at 102.50 and 101.20. However, a break above the highs will lead to the top of the channel at 105.

It is expected that the USDJPY will only appreciate from here as the Bank of Japan will look to increase their monthly asset purchases by ¥50 million per month.