All Trade Ideas and trading scenarios found on FX360.com are hypothetical. FX360.com has not placed these Ideas in a live trading environment. Forex Trading involves high risks, with the potential for substantial losses that exceed your initial deposit and is not suitable for all persons. Past performance is not necessarily indicative of futures results.

Can BOJ Intervention in USD/JPY Succeed?

Last updated 10/31/2011 5:40 AM ET (GMT -5) 1 Comments

Overnight Eco

AUD Private Sector Credit (MoM) (SEP) 0.5% vs. 0.2%
AUD M1 0.1% vs. 0.1%
JPY Annualized Housing Starts (SEP) -10.8% vs. 8.3%
EUR GE Retail Sales 0.4% vs. 1.1%
EUR Euro-Zone Consumer Price Index Estimate (YoY) (OCT) n/a
GBP Mortgage Approvals (SEP) 51K vs. 51K

Event Risk on Tap

CAD Gross Domestic Product (MoM) (AUG) expected at 0.2%
CAD Gross Domestic Product Annualized (QoQ) (Q3)

Price Action

USD/JPY soars to 79.00 on BOJ Intervention
AUD/USD falls to 1.0500 but stabilizes on pro-dollar flows
GBP/USD finds support at 1.6000 post intervention
EUR/USD holds 1.4000 in post intervention

After weeks of jawboning and warnings the BOJ finally intervened in the currency markets tonight sending USD/JPY higher by more than 300 points in matter of minutes after the pair came dangerously close to breaching the key 75.00 barrier at the start of Asian trade. Over the past month USD/JPY has been in an unrelenting one way downtrend ignoring any and all fundamental news and decoupling from the trend in 3M Libor rates that favored a dollar rally. The one way move in the pair had become a serious threat to Japan’s vital export and the country’s Finance Minister Jun Azumi repeatedly warned that Tokyo would take "decisive steps" when necessary against the strong yen. "I have said many times, if forex moves do not reflect the economic fundamentals and speculative moves last, Japan will take firm measures," he told reporters earlier in the day.

In the wake of the spike in USD/JPY Mr. Azumi confirmed that Japan intervened in the currency markets but refused to provide any detail as to the size and scope of the move. Recent Japanese efforts at intervention have quickly failed with the initial moves often unwound in as little as a few hours. However, with USD/JPY reaching fresh post war lows of 75.31 in earlier Asian trade, Japanese monetary officials may be much more determined to push USD/JPY higher than in their prior attempts. Having watched the successful efforts of the Swiss National Bank to keep EUR/CHF above the 1.20 level for more than a month, Japanese officials may decide to emulate those tactics and could proclaim a specific level of defense for USD/JPY.

There are several reasons to believe that this time intervention may be more effective. First and foremost the latest positioning data from the COT report has shown that specs had increased their yen longs by more than 26K contracts last week and tonight's action will likely create a a fury of short covering, especially if USD/JPY approaches the key 80.00 level. Secondly, latest US economic data has been surprisingly buoyant which should push US short term rates higher and it turn push USD/JPY higher as well.

Nevertheless, traders continued to challenge the central bank throughout the early European morning trade pushing the pair from the high at 79.54 down to 78.00 as shorts tested the mettle of Japanese officials. The one The one key threat to the bullish USD/JPY scenario is the persistently dovish rhetoric from the Fed. If US officials hint at further QE measures at this Wednesday’s FOMC meeting, they would undermine much of the intervention efforts of the Japanese.

Meanwhile the EUR/USD sold off markedly throughout the night falling through the key 1.4000 support level as the combination of pro-dollar flows and growing doubts about the EFSF rescue plan plagued the pair. Italy remains a key area of concern for investors in the region and today, Italian government bonds once again traded above the 6% mark putting further stress on the credit markets. On the economic front the data from Germany continued to disappoint with Retail Sales rising only 0.4% versus 1.1% eyed while Italian unemployment climbed to highest level more than a year.

With no US data on the docket during North American trade the FX session is likely to take its cues from equity flows. With MF Global filing for bankruptcy and second thought creeping into the minds of investors regarding the EFSF deal, some profit taking may be due and EUR/USD could see further weakness with shorts targeting the 1.3900 level as the day progresses.

FX Upcoming

Currency	GMT	EST	Release	Expected	Prior
CAD	12:30	8:30	Gross Domestic Product (MoM) (AUG)	0.2%	0.3%
CAD	12:30	8:30	Gross Domestic Product Annualized (QoQ) (Q3)		-0.4%

The information, including Commentary and Trade Ideas, provided on FX360.com should not be relied upon as a substitute for extensive independent research which should be performed before making your investment decisions. Global Forex Trading and FX360 .com is merely providing this information for your general information. The information and opinions presented do not take into account any particular individual’s investment objectives, financial situation, or needs. All investors should obtain advice based on their unique situation before making any investment decision and should tailor the trade size and leverage of their trading to their personal risk appetite. Any projections or views of the market provided by FX360.com may not prove to be accurate.

The views of the authors and analysts are not necessarily those of Global Forex Trading, its owners, officers, agents or other employees. FX360.com and the currency research team will not be responsible for any losses incurred on investments made by readers and clients as a result of any information contained on FX360.com. Global Forex Trading and the currency research team do not render investment, legal, accounting, tax, or other professional advice. If investment, legal, tax, or other expert assistance is required, the services of a competent professional should be sought.

Comments (1)

moonie

October 31, 2011 at 01:02 PM ET

Nice stuff. Informative and insightful as usual.

About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.

currency		trade idea
USD/JPY Medium term		Sell at 80.3800 Stop at 80.63 Target at 80
EUR/USD Long term		Buy at 1.2467 Stop at 1.2064 Target at 1.3072

currency		trade idea
EUR/JPY Medium term Opened 5/23/2012		Short from 99.9000 Stop at 101.55 Target at 98.1
AUD/NZD Medium term Opened 5/21/2012		Short from 1.2985 Stop at 1.307 Target at 1.2855
EUR/CHF Long term Opened 1/30/2012		Long from 1.2055 Stop at 1.199 Target at 1.2225

Can BOJ Intervention in USD/JPY Succeed?

Boris Schlossberg

Director of Currency Research, GFT