Will The Yen Free Fall Continue?
?? Fundamentals
The Japanese Yen has been in a freefall for the past two months, as the Bank of Japan has pulled out all the stops to stimulate growth. In today’s meeting, the BOJ is expected to extend its current stimulus plan. The central bank is expected to make an open-ended commitment to buy assets until the target inflation rate of 2% is reached.
Japan is hoping to reverse deflation in consumer prices, which has crippled economic growth. The BOJ hopes that inflation forces businesses and consumers to borrow once again, revitalizing the economy. This may be seen as adding to the already bearish sentiment for the currency, as stimulus will add to money supply.
If the BOJ does what most market observers are expecting and makes the open-ended commitment to spur inflation, any sort of bounce in Yen futures after the meeting could simply be profit-taking and may give bears a fresh opportunity to short the market.
?? Technical Notes
Turning to the chart, we see the March Yen futures essentially dropping straight down for the past two months, with very few up days. Prices have most recently broken support near the 1.13 level, which was established back in April of 2010. The next downside level the market may target comes could be 1.10. The critical downside level could be found at 1.06. Failure to hold 1.06 could result in a test of the 1.00 level.
The RSI is currently oversold, but has been on a slight upswing since earlier this month, which may be viewed as a slightly bullish signal and a sign that prices could consolidate or rebound. However, the timing of a possible reversal is difficult to gauge.
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