Friday's selloff in the USD/JPY accelerated on large volume as investors headed divested from riskier investment vehicles in reaction to the large selloff in U.S. equities. Friday's strength in the Yen also stemmed from the BoJ's decision to end a couple of its bond purchasing programs in an effort to tighten liquidity. Friday's monetary policy falls in line with the BoJ's more conservative stance since the DPJ took office. Furthermore, the BoJ was likely encouraged by the USD/JPY's recent solid performance above its important 90 threshold. However, yesterday's larger than expected decline in both the Tokyo Core CPI and Household Spending tell us the BoJ can't be too conservative with its monetary policy since deflationary pressures are still bearing down on consumer prices. Additionally, even though last week's Industrial Production number printed better than analyst expectations, the 1.4% rate of growth is unsubstantial compared to the huge declines we witnessed during late 2008/early 2009. Hence, Japan's economy still faces a long path to recovery.
Meanwhile, investors will be focused on the flow of important U.S. econ data along with more Q3 earnings reports before Wednesday's FOMC meeting. Additionally, investors will receive monetary policy decisions from both the ECB and BoE on Thursday. Therefore, we could be in for another volatile trading week since there is an air of uncertainty surrounding the upcoming central bank decisions. For the time being, it seems investors may favor the Yen over the Dollar as a safe haven due to yesterday's selloff in conjunction with pullbacks in the EUR/USD, GBP/USD and AUD/USD. As a result, the USD/JPY could be in for further weakness should the S&P futures choose to test their October lows and the psychological 1000 level. However, we'll also receive a public address from BOJ Governor Shirakawa on Tuesday along with BoJ meeting minutes on Wednesday. Any surprising language coming from either of these events could have a moderate impact on the Yen.
Techncially speaking, the USD/JPY dropped through 10/16 lows and was fairly close to testing 10/14 lows. Furthermore, the currency pair sank past the highly psychological 90 level along with our 1st tier uptrend line on high volume. As a result, present momentum appears to be in favor of the downside. As for the topside, the USD/JPY faces multiple downtrend lines along with 10/30 highs. On a positive note, the currency pair has managed to climb back above 90 this morning to keep its head above water.
Present Price: 90.11
Resistances: 91.16, 91.29, 90.41, 90.60, 90.78, 90.93
Supports: 89.91, 89.77, 89.60, 89.38, 89.26, 89.14