The Bank of Japan (and/or the Japanese Ministry of Finance) has an excellent sense of timing technicals. Last night’s intervention to put an end to the on-going strength in the Japanese yen came just as the U.S. dollar looked ready to follow-through on its break of the important support at the 200-day moving average (DMA). While the dollar soared around 3% against the yen, the dollar index only posted a 0.4% gain as other major currencies recovered or scored additional gains against the dollar.
*Chart created using TeleChart:
The first full day of the intervention has been a smashing success as yen buyers have to yet purchase a lasting reversal. Perhaps the meddling Swiss National Bank needs to take notes!
This episode was yet another reminder that acting on a breakout move often requires the patience to wait for follow-through. Moreover, patience is sometimes required when executing a trading strategy. I have been waiting for a lasting relief rally for the dollar versus the yen for over 5 weeks now…and all the while, slowly but surely bulking up the position, hedging with numerous short-term longs on the yen while biding my time. Now that a heavy hitter is batting on my side of the trade, I will just cruise and see where this goes over the next weeks or months. (I am still hoping I can hang in there long enough to execute on the longer-term bearish view on the Japanese currency with the prospects of an eventual default on its sovereign debt). I also opened up a small, fresh short on EUR/JPY to provide a small brace against any surprise return of strong yen buyers (I remain bearish on the euro). It will be interesting to see whether the BoJ will have to fight the headwinds of a weakening dollar or get boosted by a resurgence in the dollar. Again, the 200DMA should be key in this struggle.
Be careful out there!
Full disclosure: long USD/JPY, short EUR/JPY