Japanese Yen traders were caught off-guard when stop losses were triggered after Apple Inc added to signs of global slowdown after it downgraded its forecast. A whopping 3.6 percent (about 400 pips) fall in the pair to 104.74 got the carry traders running helter-skelter for 15 minutes before yen retraced back towards 107. This sudden fall in USDJPY (qualified as flash crash) was similar to the one in March 2011 when the pair declined 3% in 10 minutes due to liquidity concerns and also tsunami and earthquake before it recovered sharply. Both the events occurred after US market hours.
The slowdown in the global market has caused traders to shift their investments to safer havens like gold and yen. The carry directed yen saw an increase in volume especially after the New Year break. Chinese manufacturing contraction poured water on the already bearish markets. Having remained closed whole of this week, Japanese markets will open tomorrow to make merry of the sudden appreciation in yen. Bank of Japan’s monetary policy meeting is due on Jan 23 where Mr. Kuroda is expected to keep status quo in line with the earlier meets. Economic calendar looks lean for the month otherwise.
Technically speaking, the long term trend seems to be supporting the pair but in the near term, support is seen at 108.65 at 38.2% Fibonacci retracement while 109.83 is at 50% Fib level. Momentum indicator RSI – 14 day has touched the oversold zone going below 30.
If 108 is not crossed convincingly, the yen may appreciate further towards 106.55 from here.