A quite dramatic selloff of Japanese assets today drove investors to safe haven bets, pushing yen up over 1,50% against the US dollar to test 101.00. Dollar weakness was based on Fed’s intention to keep monetary easing at the current level until the economic situation improves substantially. However, Bernanke’s remark, that the eventual tapering of the QE will be discussed over the next few FOMC meetings, if the labor market recovery continues, provides a mid-to-long term prospect for continued US dollar strength. On the contrary, BOJ is unlikely to change its recently announced aggresive easing program.
Tactics
In the long term, the pair remains in the uptrend channel. Therefore our analysis will be based on looking for buy signals, given the bearish signals in the uptrend tend to be less reliable. As there is a potential for a deeper correction in the pair, we suggest looking at more downside towards the lower end of the bullish channel. After breaking below recent swing highs at 100 level, short-lived bounce higher can be expected, but with further downside potential to the channel bottom. A look at MACD indicator, which tends to be more accurate when strong trend is present, shows that the short-term moving average nears crossing long-term moving average from the upside, thus forming a bearish signal.
At this level, just below 98.00, the channel bottom meets with another support of a daily ichimoku cloud line. Breaking below this level would negate our long-term bullish bias. Given the fundamentals, the significant break below is not likely (although cannot be ruled out, as we have all learned in forex). Therefore buying on dips, particularly when looking at the technical perspective, might be a good strategy to grab some pips here.
