The USD/JPY’s bounce ran out of steam as we anticipated and the currency pair was deflected by our 1st tier uptrend line today after buy-side volume proved insufficient. We recognize a rise in sell-side activity with investors exiting the Dollar amid fear that America’s liquidity measures will result in a broad-based devaluation over the medium-term.

Both the EUR/USD and GBP/USD are experiencing a rapid appreciation against the Dollar as well today. We cautioned that a strong downward force is still bearing down on the USD/JPY with our 2nd tier downtrend line and makeshift 1st tier uptrend line fading into the distance. Investors are clearly favoring the Yen over the Dollar with important data from Japan, China, Britain and the U. S. on the way.

While investors will surely be scrutinizing Japan’s Core Machinery Orders data tomorrow, Thursday will be the center of attention with a monetary policy decision from the BOE coupled with key economic data from China. China’s data will be important for the Yen since Japan is much more reliant on its exports to the communist nation with consumption damaged in the West. Weak data from China and the U. S. could mitigate losses in the USD/JPY and help the currency pair keep its head above water. However, the combination of strong Industrial Production from China coupled with weak U. S. data would likely result in an aggressive appreciation of the Yen vs. the Dollar. Considering the downward pressure on the USD/JPY and topside breakouts in the EUR/USD and GBP/USD, it seems the USD/JPY’s pullback may have quite a ways to go over the near-term.

Technically speaking, the immediate-term key will be for the USD/JPY to stay above September lows. If not, we should see a quick test of July lows. Beneath these levels, the currency pair does have historical consolidation dating back to January and February trading ranges. Furthermore, the USD/JPY has the highly psychological
90 level to fall back on should the downturn pick up speed again. As for the topside, the USD/JPY needs to climb back above our 1st tier uptrend and 2nd tier downtrend lines along with previous September highs in order to save face.

Present Price: 92.14

Copyright 2009 FastBrokers, Latest Forex News and Analysis for Forex, Bullion and Commodity Traders.

Disclaimer: For information purposes only. FastBrokers assumes no responsibility or liability from gains or losses incurred by the information herein contained. There is a substantial risk of loss in trading futures and foreign exchange.