Last week, the news of potential U.S. Fed tapering during Fed Chair Ben Bernanke’s comments did not go over well with the markets. The Nikkei would slide over 10 percent, from 15975 to close at 14325. The yen was not avoided and was driven by the implied tapering – as if the market thought the Fed’s massive stimulus could continue forever.
The Governor of the Bank of Japan, Kuroda, noted that the BoJ wants to ease the volatility in the bond market as JGB rates have hit five year highs. Kuroda mentioned that the BoJ will introduce flexible money market operations while pressing on to the inflation target of 2 percent.
The USDJPY was not spared by the carnage, and it fell from it’s newly reached high of 103.73; and then it free-fell to 101.29 at the end of Friday’s close, -2.43 over the course of the two days. The USDJPY has intensions of going lower as the dollar does not help it’s case as it seen selling pressure, as well. Currently, the USDJPY sits on the 20 EMA and has bounced off twice. If the 20 EMA can no longer hold, support levels are seen at 99.7 and 98.61. In the daily chart of USDJPY, it is apparently that the USDJPY in clear rectangular levels. A breech of this level, and we can see the USDJPY 150-200 pips lower. Conversely, if the dollar holds up dips can be opportunities to buy. It would be wise to wait until clear support – not accumulation – forms under the pair.
The dollar has found resistance just above the 2Y high of 84.24. There is minor support at 83.48, but it is unclear about dollar sentiment as many were looking for any opportunity to short the strong dollar. There still can be strength in the greenback given that the U.S., albeit slow-growth, is growing much more than there European and Japanese counterparts. The dollar may retest the 84.24 level. Otherwise, if the selling continues this week, we can see the dollar around 83 (if not lower).
There is still so much to be seen as the markets have moved on expectations rather that anything else. Bernanke has not actually committed to taper, but the mere hint drove the markets into a frenzy. At some point, I would have thought some sort of taper would have been priced in as if 85B/mo. was sustainable for an infinite period of time. This goes to show you how much of an impact the Fed has on the current rally or central banks in general. Tonight at 7:50 EST, the BoJ Monetary Policy Minutes come out and may send the yen in either direction given the details. More importantly, the U.S. GDP numbers are out Thursday, estimating 2.5 percent growth.