Yen Shows Risk-Off Tones on Key Event Risks
2017 has started with a risk-off tone for the Yen, with the currency gaining against its key peers ahead of several risk events. Since the start of the year the pair has lost nearly 300 pips. Traders continue to favor the inherent safety of the currency as they wait to for markets to define a clearer direction.
Some of the gains that were seen in dollar pairs at the end of 2016 have started to reverse into the New Year. The dollar was propelled by the American Federal Reserve and the expectation of further rate rises at the end of last year. This year however focus has turned to the inauguration of Donald Trump as US president. In addition markets remain jittery on increased worries about the effect of a ‘hard’ Brexit for the UK economy.
The outlook for the British economy since the announcement of the intention of the country to leave the EU remains in the balance. Prime Minister Theresa May is set to deliver her speech on the 17th January. In this she will clarify the government’s plans for leaving the EU. The pound is expected to be highly volatile around this time. The GBP/JPY could be set to add to its recent falls on the outcome of the speech.
Later in the week risk returns with the inauguration of Donald Trump. While not a risk event as such, the new president garners mixed feelings in the markets. How they perceive his presidency as it starts to unfold will have a profound effect on trading moves.
So far his election has proved been positive for markets. However there is much expectation as to where his policies will ultimately send the US markets and other financial assets over the term.
From a technical perspective is likely that markets will continue to pressure the dollar in favour of the Yen.
The strong rise that the pair has enjoyed since September 2016 looks set for a period of consolidation.
The potential spanner in the works is the Bank of Japan. Abe has been keen to see a weaker Yen to take pressure of exports. It is well known that the central bank has little fear in intervening in the markets. It could do so again if the Yen strengthens too far.
That said it is unlikely at this juncture that the bank will intervene until a clearer picture of global economic activity emerges. This potentially leaves time for the markets to signal further falls in the pair.
Obvious levels of interest settle around the 100 Day and 200 Day SMA. In particular note the 50% retracement level around 109.30 . This could provide an area of confluence support. A trader could place a Put trade with a Binary broker to back further falls. The lower falling trend line also intersects this level.