Tuesday 8 November 2011

USDJPY contingent trade

The last 10 days of DollerYen:
I list some factors at play here, in order of importance.

Upward pressure on Yen:
 - Interest rate parity condition, safe haven currency, deflation
Downward pressure on Yen:
 - BoJ Intervention
Upward Pressure on Dollar:
 - Treasury buying, safe haven & reserve currency, Commodity buying (e.g. strong demand for Gold out of China)
Downward Pressure on Dollar:
 - Interest rate parity condition, Possible EMU contagion (Yen less affected)

Having thrown money at this market several times over the last month, the BoJ may well be tired of losing billions . We see further downward pressure on this pair.

However, the market, or indeed the BoJ, seems to be defending this 78 level. Clear as day in the chart above.

So there is no short entry just yet.

But you will be the first to know of our sizeable position if/when this gung-ho sovereign decides to throw more money in front of this runaway train.

***EDIT*** 14:43: The market has broken 78! Bid at 77.74...  Watch for any intervention from BoJ
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