The yen must be giving the Bank of Japan (BoJ) headaches as the risk reversal taking place in 2014 send the yen higher off 2013 lows. The move in the yen is looking rather bullish as market participants continue to take profits as mixed data continues to defy 2013’s optimism.
Richard Yetsenga, head of global markets research at Australia & New Zealand Banking Group Ltd., said “the yen can definitely strengthen on the crosses and we can see a little bit more short-term strength in the yen against the dollar.” However, the short-term can see a violent move lower for the USDJPY, down over 300 pips from its 2013 highs. As questions about the economic recovery worldwide begin to garner more attention, the trend in yen is likely higher. The USDJPY can still decline given the movement in the yen is more “violent” then the dollar, so both safe-haven currencies that be up as USDJPY continues to decline.
The daily chart of USDJPY shows price action bouncing off support at 101.71 last week, while this makes the third time in five sessions the pair has seen sub-102 levels. As the yen pulls back on profit taking, we will likely see another retest and compromise of 102. If so, 101. 60 and 101.42 will be support. However, momentum of the yen could allow USDJPY to reach a target of 99.75.
If the yen retreats significantly, we could see the USDJPY trend upwards to 103.45/50 where price action resistance and the 20 EMA sit. However, the 50 EMA could pose problems near 102.90.