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USD/JPY is under attack this morning.  Having weakened throughout the European trading session, the U.S. dollar extended its losses right before stocks opened for trading. There was no news or economic data behind the latest push lower but last night's comments from Finance Minister Azumi who suggested that he was unable to elicit support for intervention from other nations made investors realize that the Japanese will have to go at it alone - which has traditionally been a losing proposition.  The only difference this time around is that Japan has an extremely large war chest for intervention and they are not shy about using it.  As a result, the latest sell-off in USD/JPY puts the currency pair back into intervention territory, making short USD/JPY positions particularly risky.  Even the much better than expected University of Michigan consumer sentiment number failed to lend support to the greenback.  Thanks to the rebound in the equity market and lower gas prices, consumer sentiment rose to its highest level in 5 months. The University of Michigan Consumer Sentiment index hit 64.2 in November, up from 60.9. As retailers gear up for the holiday shopping season, the improvement in sentiment could not come at a better time.  With that in mind however, the focus remains on action by policymakers. The greatest risk is more intervention by the Bank of Japan and more headlines out of Europe.

Since Italy has been the source of the market's latest troubles, it is no surprise to see the euro and equities trading higher this morning on the prospect of a leadership change over the weekend. We are very close to the end game for Berlusconi who promised to step down once the Budget plan has passed.  One major hurdle  has already been cleared with the Senate approving the painful but crucial Budget cuts.  The next step would be for the Lower Chamber to approve the bill on Saturday and if we are lucky, Berlusconi will follow through on his promise by announcing his resignation on Sunday and hopefully by Monday Italy will have a new leader. Berlusconi's departure will usher in a technocratic government that will hopefully implement austerity measures swiftly and aggressively. After 3 terms as Prime Minister, Berlusconi has been a larger part of the problem than the solution. The old habits of Italian politicians obstructed progress and put the country at risk of knocking on their neighbor's doors and asking for change.  This will be a big weekend in Italy and the prospect of Berlusconi's resignation should keep the EUR/USD bid throughout the North American trading session. 

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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.