US Dollar Slumps to Near New Lows against Yen

Friday, 8 October 2010

Despite the ongoing risk of intervention in the USD/JPY currency pair, the pairing slumped to fresh lows on Thursday - printing 82.17 at one point before bouncing back to 82.70 later in the session. This latest move left traders star struck, waiting for any sign of Japanese central bank intervention which must be close - given the logic behind the intervention just a few weeks ago.

The USD was the major currency to blame in the pair, with the lows being attributed to the weakening US economy. Non-farm payrolls are due out on Friday, and the printed number is expected to be a positive 20,000 jobs added in September.

However, given the volatility of the jobs numbers over the last few months - investors are reading themselves for a potentially worse number than the average expectation. Still though, if the number is worse, it will have another poor effect on the USD against most other currency pairs.

Already though, many investors are asking why it is that the Japanese Foreign Ministry has not already pulled the pin on currency intervention and tried to push the USD/JPY pairing higher from the current lows. As many will remember, the 82.00 to 83.00 is the risk area for intervention, as this is where the bank bought the currency pairing just 4 short weeks ago when the quote fell to those levels.

The answer as to why the intervention has not already taken place is that the G7 meeting of economic superpowers is taking place this weekend. Given all of the currency over and under valuations which are currently present in the market, the G7 focus is predicted to be on righting some of those wrongs.

Nevertheless - the Japanese Foreign Ministry is not going to turn a blind eye to currency action, and investors realize this and have literally planned it in to all of their trades.

Many traders we spoke to this morning admitted that whilst they are currently holding short positions to take advantage of the weaker USD, all of their trades are progressing with extremely tight stops - which clearly illustrates the threat of intervention. Once the Japanese central bank does intervene - the currency is more likely to spike higher than gradually trickle upwards. Hence - investors are already preparing themselves for something which is ultimately being looked at as the inevitable.