The unabated march of the Japanese Yen against the US dollar continues to rattle the equity markets this week. The USDJPY pair declined to touch a 17 month low of 110.30. For at least six months as of now, the speculators see the pair as an asset offering a simple and straight forward shorting opportunity to make boat loads of money.
In fact, the pair has become the first choice for many traders to go short. Big traders continue to pile up short positions whenever the currency moves northwards. Since currency pairs can sometime reverse sharply, a binary options trader should make a valid assessment of the current scenario before purchasing an option contract.
Most of the weakness currently seen in the US dollar is mainly because of two reasons. Firstly, the market was expecting some sort of indication regarding the Fed rate hike. In the previous FOMC meeting the Fed had announced that it still anticipates at least two hikes this year. However, the comments from FOMC members were mixed. In fact, the statement made by Janet Yellen last week was perceived as dovish by the market. Thus, lack of clarity has brought in more short selling speculators in the USDJPY pair.
Financial Times
Secondly, the weakness in the price of crude oil contributed to the selling pressure in the currency pair. Generally, a rise in the price of crude oil is perceived as positive to the US economy and vice versa. The increase in the oil reserves and the prevailing supply glut has ensured that the crude was unable to cross the price of $40 per barrel. This weakness is now getting transferred to the equity and currency markets.
As far as Japanese Yen is concerned, the market firmly believes that the Bank of Japan has few options to weaken the Yen. The Yen’s appeal as a safe haven currency continues to negate the weakening efforts of the BoJ. Furthermore, there seems to be no indication from the BoJ to undertake further easing measures as of now. Such a scenario adds to the strength of the Japanese Yen. Thus, considering the above facts, fundamentally, the USDJPY is expected to decline further.
Technically, the USDJPY currency pair is on a long-term down trend. The currency pair has broken the minor support at 111 levels. The next major support is at 108. On the upper side, minor and major resistance exists at 117 and 120 respectively.
USDJPY Pair: April 7th 2016
A forex trader should go short at the prevailing level with stop loss above 112.50. The short position should be closed when the price reaches 108 levels. Similarly, as far as a binary options trader is concerned, purchasing a one touch put option contract would be the best option in this scenario. A target level near 108 should be selected with the contract expiry date in the first week of May.
