DailyFX.com - Big Warning Sign for Japanese Yen - Time to Abandon Positions?

Big Warning Sign for Japanese Yen - Time to Abandon Positions?

Fundamental Forecast for Yen: Bullish

  • Bank of Japan disappoints, Japanese Yen relatively unchanged
  • USDJPY posts largest move in four weeks
  • For Real-Time SSI Updates and Trades on the Japanese Yen, sign up for DailyFX on Demand

The Japanese Yen rallied sharply a complete lack of market news. Why is this significant, and what does it tell us about the next moves for the USDJPY?

Professionals scrambled for explanations on why the USDJPY posted a sharp 50-point tumble in the typically-quiet period after London markets closed. And indeed some initially pointed to a so-called “fat finger trade”—where a trader accidentally places an especially-large order that sends markets reeling. Yet the truth was far simpler: there was indeed a spike in USDJPY selling (Yen buying), but nothing about it seemed accidental.

This fact is significant because large speculators were heavily short the Japanese Yen (long USDJPY) headed into the week, and recent price action suggests many are losing patience with those positions and exiting their trades. Thus the USDJPY looks likely to trade towards range lows unless we see an important shift in trader sentiment.

Focus will turn to upcoming Japanese GDP growth figures for the second quarter, as these economic figures will be the first to include government consumption tax hike. Consensus forecasts predict that the economy posted its worst quarter for growth since the global financial crisis. It is subsequently surprising to note that the Bank of Japan shows little willingness to ease policy further. Yet any worse-than-expected figures may force the USDJPY higher as pressure mounts on the central bank to act.

Japanese Yen volatility prices have risen sharply off of recent record lows as traders position for bigger moves ahead. Whether or not the USDJPY breaks significantly out of its recent range could very well depend on key economic data.

It will likewise be important to watch volatility in broader financial markets as the US S&P 500 drops sharply off of recent record peaks. Whether or not equities can recoup losses may likewise dictate price action in the USDJPY. - DR

Related Articles
  1. Forex Education

    Four Currencies Under the Spotlight in 2016

    With currencies having become the “tail that wags the dog,” in terms of their impact on the global economy, these four currencies will be under the spotlight in 2016.
  2. Forex Fundamentals

    These Currencies Are The Biggest Losers Of The Stock Downturn

    Here’s a list of the hardest-hit currencies amid the global stock market mayhem.
  3. Forex Strategies

    Will the Euro Continue to Rally? (EUO)

    The euro is rallying. Should investors chase this performance or is the real opportunity on the other side of the trade?
  4. Investing News

    China’s Forex Reserves Dropped Significantly

    China’s forex​ reserves dropped by a record $93.9 billion at the end of August to $3.56 trillion because the Central Bank has been selling dollars to provide a cushion to the falling yuan​
  5. Forex

    The Pros and Cons of a Fully Convertible Rupee

    Amid the rising economic power of India, the talks of making the Indian currency fully convertible are gaining momentum. We look at the pros and cons.
  6. Forex Fundamentals

    Chinese Yuan an Unlikely Reserve Currency

    As the world's second largest economy, China's challenge to America’s dominance includes a push to make the yuan (RMB), the world’s reserve currency. Whether it can do that now is unclear.
  7. Economics

    How Currency Enforcement Helped Sink The Trans-Pacific Partnership (TTP)

    One particular barrier to trade that has received much attention of late and caused delays in negotiations of the TPP is exchange-rate manipulation, by which a country artificially devalues its ...
  8. Forex

    Top U.S Forex News Sites

    Breaking news moves forex markets. Here are the top U.S. sites for tracking forex news.
  9. Investing

    Financial News Comparison: Bloomberg Vs. Reuters (BAC, GOOG)

    Access to financial information has grown with the expansion of digital news. Bloomberg and Thomson Reuters lead the pack, claiming a majority of the business information market.
  10. Economics

    Who Benefits From South Korea's Lowered Interest Rates?

    South Korea is the latest country to cut interest rates in an attempt to stimulate economic growth.
Trading Center