The boost in confidence seen in the markets after the approval of the second half of the $700 billion for president elect Barack Obama alongside more measures to stabilize financial markets in the US, specifically the bailout of the Bank of America, has pushed investors towards carry trading as they now target higher yielding assets rather than the Japanese yen.
The 16 nation currency continued to incline in the markets to extend its gains yet it seems that it will need a downside correction as seen on William's percent range after entering an overbought area on the four hour charts. Yet as direction indicators are still supporting the upside movements, any downside correction will be weak therefore will not pass the 1.3250 – 1.3265 zone. A rebound from this level will open the way for the pair to target the next short term upside target at 1.3380s.
Concerning the cable, carry trades has pushed the pair to the upside to currently retest the 1.4940s levels where if breached will open the way near the 1.50 levels. However similar to the Euro, the royal pound is being overbought on the four hour charts and therefore before heading towards our above mentioned target, we expect the pair to correct slightly to the downside to 1.4875 in an attempt to gather enough bullish momentum and rebound back to the upside.
As for the Japanese Yen, it continues to be the victim in the markets as it depreciates against all the majors. The breach of the 90 resistance level resulted in the USD/JPY pair to soar to record an intraday high of 90.73 up to the hour of this report. However, we currently see the possibility of a reversal signal on the four hour charts where we are waiting for a confirmation signal to assure the downside movements which is expected to be only a correction since the gains seen today were marked excessive. This controlled pullback will take the pair back to 90.20 at the very least before attempting to target the 50% correction for the ascending channel at 90.90.