Yen Trading Down as Investors Take Profits

Monday, 27 September 2010

Investors started the week by taking profits on the major currency pair – USD/JPY – as the threat of intervention in the pair dwindled. It seems that over the weekend, investors thought through the possibility of further intervention by the Japanese Foreign Ministry, and came to the conclusion that further cautious trading was not necessary.

As at 2:00pm Japanese Standard Time, the USD/JPY was quoted at 84.24 – which is slightly stronger than at the close of last week. The currency pair closed the previous week at 84.12.

Speculation at the end of last week was the main driver of price action on Friday. On Monday, given that investors had edged out of the "ntervention" trade, price action was mainly ruled by position corrections rather than any solid news. There is very little news out of Japan this week; however we will be awaiting the print of the jobs report from the USA on Friday.

Whilst the USD/JPY doesn't usually move as much as the EUR/USD or GBP/USD on the release of the data, it will certainly still be interesting to see just what the reaction is to the release of the data. We will keep you updated as to the expectations of the non-farm payroll report as the week progresses.

Speaking of the USD, the US Dollar Index, which tracks the USD as a whole against all currencies, rose slightly in the past week. Strength for the USD is something which is relatively new over the last few months, as the USD has suffered some severe losses to date this year.

Nevertheless, it would seem that the markets are either favouring safety at the present moment, given the continuing debt issues in the Eurozone – or of course the other option is that they genuinely believe that the US economy is getting stronger. Based on the past price movements and commentary from investors, we believe that the latter situation is more likely to be the one which is correct.

If there is any one piece of news which might come in the most useful this week, it will definitely be the ECB tenders which are scheduled for Wednesday. The pivotal question here will be whether or not the European banks will be keen to roll over their existing debt with the ECB, or reset it further down the track at a more attractive rate. The actions of the banks could have a significant effect on the Forex markets, so we will be watching cautiously.