Will USD/JPY Also Test its 2009 Lows?

Last updated 9/8/2009 9:38 AM ET (GMT -5) 2 Comments

Kathy Lien

Director of Currency Research, GFT

There is no major U.S. economic data on the calendar today but that does not mean that it has been a quiet morning in the currency market - quite the contrary. Dollar bashing at the United Nation's Conference on Trade and Development drove the greenback to a year to date low against the Euro, Australian and New Zealand dollars. We have been very bullish Australian and New Zealand dollars for the past month and we are finally seeing the currency pairs reach our near term targets of 1.45 in the EUR/USD and 0.87 in the AUD/USD. Last week on Bloomberg Television we updated our AUD/USD target to 89 cents and we continue to believe that the currency pair will hit those levels. Dollar bashing has been the icing on the cake for the anti-dollar recovery trade.

However not all currency pairs are trading at yearly lows. The GBP/USD and USD/JPY are good examples. The British pound has been pulled in two different directions by dollar weakness and a dovish central bank. USD/JPY weakness on the other hand has been limited by the improvement in risk appetite.

Will USD/JPY Also Test its 2009 Lows?

With the dollar breaking down, many traders may be wondering whether USD/JPY could also test its 2009 lows. First and foremost, USD/JPY is currently trading above 92 and its 2009 low is at 87.13, more than 500 pips away. In order for USD/JPY to reach its yearly low, we would need to see a complete breakdown in the dollar and/or a Shanghai index style sell off in U.S. equities.

This is not out of the question considering that the improvement in the labor market has not translated into a major improvement in consumer spending. It is also cheaper to fund in dollars than in Yen using the 3 month LIBOR. Unfortunately the recovery in Japan is starting to show signs of weakness which could stifle gains in the Yen. This morning, the Eco Watchers survey fell for the first time in 7 months. As our colleague Boris Schlossberg pointed out this morning, 92.00/91.75 is a very critical support level in USD/JPY. There is a good chance that this level will be broken in the coming week and if that is the case, USD/JPY could test 90. However the chance of the JPY rising to a new yearly high against the USD like its other counterparts is slim considering that it would require a major shift in sentiment.

Gold Hits $1000 - Following Seasonality

We also want to point out that gold is following its seasonal trend. On Monday, in our article on How the Dollar Could React to Stock Seasonality in September , we showed a chart of how Gold performs in September and we found that in 8 out of the last 10 years, gold appreciated this month. For gold prices to continue to rise, we would need to see further weakness in the dollar.

Comments (2)

jet

September 08, 2009 at 06:15 PM ET

his usd/jpy trade is driving me crazy when - When the equitied markets rally a bit, like today for example the usd/jpy went down. And so according to your comments if the equities markets sell off the usd/jpy will go down - hmmm? What conditions cause it to go up if that's the case??? Data out of jappan is weak the yen gets stronger good data out of the US the jpy gets stonger - Am I the only one who thinks this is a little bit crazy???

justfx

September 11, 2009 at 06:02 PM ET

Japan has a new government in place. They may be cutting the amount of intervention by the BOJ intervining in the value of the Yen.

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About The Author

Kathy Lien began her FX trading career 10 years ago at J.P. Morgan Chase. After graduating New York University’s Leonard Stern School of Business at the age of 18, Kathy joined the bank's interbank FX trading desk and eventually moved to the cross markets proprietary trading desk. In the interbank market, her ability to create solid fundamental and technical analysis from the myriad of information on the market helped her trade forex spot and options. Her experience eventually led her to be chief strategist at Daily FX where she worked until she joined GFT in 2008.

With her knowledge of forex, as well as her experience trading other products, such as interest rate derivates, bonds, equities, and futures, Lien has built a reputation as an international currency analyst. She is frequently quoted on CNBC, Bloomberg, Fox Business and Reuters. Lien has also written for publications like Active Trader, Futures, and SFO magazine. She is the author of the newly updated Day Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves, and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Boris Schlossberg.

To buy Kathy’s newly updated Day Trading and Swing Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves, click here.