By Jay Norris
Regardless of what may seem to be the case in trading, more times than not, fundamental events and technical readings support one another. The Yen is a good example of this, and is looking quite interesting to me as it approaches potential support in the way of its longer-term moving averages. Japanese Prime Minister Fukudaâ€™s words in a November interview are still echoing in the back of my mind as I look at the daily futures chart: â€¦from a long term perspective, I think a rising Yen should not be rejected, but I emphasise long termâ€¦
In the same interview in the Financial Times last month the Japanese PM also warned of the potential for market intervention if the Yen appreciated too quickly, which was likely a reference to the rally which started in mid-October. Traders and the market heeded his words and we saw a well-behaved Yen pull back from late November through the current holiday slow down. No surprise here that we see low volume into December as the majority of financial markets slow because of various holidays and year end. Looking at the volume patterns, overlaid on the RSI indicator, coming out of the summer however, we see higher volume on the up swings and lower volume on the down swings. This serves to confirm what the higher highs and higher lows over the last 6 months are telling us, which is that this market is in an uptrend.
As for the effects going forward for the financials marketsâ€™ current trauma, Prime Minister Fukuda had this to say in that November interview: I think the impact of the subprime issue will be limited in Japan as compared with the US or Europe. Of course a limited number of companies may be impacted. But the overall impact will be limitedâ€¦Of course, there's a question about how the world economy will develop from now. There certainly could be a negative turn in the world economy and since Japan is very much involved in global trade and finance, doubtless Japan will also be affected. But I don't think Japan will be affected particularly badly compared with other countries.
In currencies where weâ€™re always trading pairs, or spreads, that is long one currency and short another, the Japanese Yen may prove to be less worse-off then the Western currencies, which would be another support beam for the current long-term uptrend for the daily Yen chart.
Feel free to call or e-mail me if you have any questions.
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