Focus Back to Risk Aversion, Yen Crosses Tumble
Market’s focus returns to risk aversion and the carry trade unwinding today. From Europe, French bank BNP Paribas said three of its funds were hit by US subprime mortgage problems and decided to temporarily suspend redemptions from the funds. Yen is sharply higher across the board. Momentum of the yen continues into early US session as US stocks headed for a sharply lower open. As discussed earlier today, rebound in yen crosses should have completed yesterday, and retest of recent lows is set to be seen at least, with prospect of extending the decline. Meanwhile, the greenback remains relatively steady and carry trade unwinding is centered around higher yield currencies as well as euro. Dollar has indeed been riding on this wave again and surges against Euro and Sterling.
USD/JPY
Daily Pivots: (S1) 119.01; (P) 119.42; (R1) 120.12; More
As discussed before, rebound from 117.14 should have completed with three waves up to 119.80 after just missing 119.81/89 cluster resistance (100% projection of 117.15 to 119.07 from 117.97 at 119.89 and 38.2% retracement of 124.13 to 117.15 at 119.81). Further decline could now be seen to 117.97 support and break will confirm this case and encourage retest of 117.15 low. Break again will indicate such decline has resumed for next downside target of long term rising trend line support (now at 115.74). However, above 119.81/89 will indicate much stronger rally is underway for 61.8% retracement of 124.13 to 117.15 at 121.46.
In the bigger picture, break of 118.35/57 cluster support zone (38.2% retracement of 108.99 to 124.13 at 118.35 and 61.8% retracement of 115.13 to 124.13 at 118.57) has also had medium term rising trend line (108.99 to 155.13, now at 118.39) taken out. Sustained trading below these levels argues that whole rise from 108.99 has completed. In such case, much deeper decline should then be seen to long term rising trend line support (now at 115.70) and then further to next important support zone of 114.41 and 115.13 (61.8% retracement of 108.99 to 124.13 at 114.77).
Sustained break of 114.41/115.13 support zone will strongly suggest that the whole multi year up trend from 101.65 is already completed and much stronger and sustainable rally in the Japanese yen should then be seen in medium term. However, note that strong rebound above 114.41/115.13 support zone or a break above 122.40 will save the case that long term up trend from 101.65 is still in force for another test of 124.13 high at least before completion.
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Shing-Ip Tsui is the founder and CEO of www.ActionForex.com. ActionForex is set up with the aim to empower individual forex traders by providing insightful contents. Analysis reports, live pivot points on majors and crosses, etc are provided with collection of carefully selected educational articles and free trading ebook downloads.