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Foreign Exchange Update: Yen in Focus

Traders reported strong demand for options betting on further yen weakness, with one-month dollar/yen implied volatility — a measure of expected price movement — rising to its highest since August 2011.

One-month risk reversals showed demand to buy yen puts, or bets on the yen falling, also rose.

We are betting the BOJ could undershoot expectations and this could see the yen rebound.

Crossovers

Currently the MACD is bullish since it is trading above its signal line.The MACD crossed above its signal line 26 period(s) ago. Since the MACD crossed its moving average, FOREX JPY=’s price has increased 7.50% , and has ranged from a high of 90.180 to a low of 83.100.

HCM research indicates the Yen is in an overbought condition. The security price has set a new 14-period high while our momentum oscillator has not. This is a bearish divergence.

The dollar could gain over the next month due to its status as a safe-haven as U.S. politicians debate how to raise the country’s borrowing limit, the so-called debt ceiling.

U.S. consumer sentiment deteriorated for a second straight month to hit its lowest in over a year in January, with a record number of consumers citing the recent “fiscal cliff” debate in Washington, a survey released on Friday showed.

EURO SLIPS

The euro last traded 0.3 percent lower against the yen at 119.78 yen, down from 120.70 hit earlier – its highest since May 2011.

The euro was also down against the dollar, falling 0.3 percent on the day to $1.3328. It had earlier hit $1.3401, just shy of a 11-month high of $1.3403 set on Monday.

The could remain under pressure if concerns about global growth continue.

China’s economy grew at its slowest pace in 13 years in 2012, though a year-end spurt supported by infrastructure spending and a jump in trade signalled the foundation for the stable growth path Beijing says is vital for economic reform may be in sight.