Is the Dollar Vulnerable Against the Yen?

Is the Dollar Vulnerable Against the Yen?The Japanese Yen is currently in a strong uptrend that began early in February of this year that shows it testing its high against the United States dollar from early April of 2011. This remarkable recovery that is taking place in just over a year since the devastating tsunami wreaked havoc with Japan’s economy is a testament to the resiliency of the Japanese people and the diversity of their economy.

It remains to be seen if the Yen can equal or surpass this high, but it is quite possible if any major economic event were to occur to threaten the somewhat fragile recovery the U.S. economy has displayed recently.

From a strictly technical point of view, the Yen is currently touching a level of resistance where it spent the last two months of 2010 and the first two months of 2011. Other than a brief spike in early April of 2011, the Yen has been in a sideways holding pattern that gradually worked its way lower until the end of January of this year.

Based on the steepness of the uptrend began has been displaying against the U. S. Dollar, it might seem as though a correction is overdue, especially when the time involved and the fact that the trend originated from levels of support that were maintained all the way from the end of July 2011 until the beginning of the current uptrend in February.

The recent resurgence of the Yen is still well below the highs of June 2007 and August of 2008, which might imply that the dollar is indeed vulnerable against the Yen. Whether this recent uptrend is sustainable over the long term remains to be seen, however, there does seem to be some very substantial long-term resistance right around the high of $.85 that the Yen put in early in April of 2011.

Given that the tendency of this currency pair over the short term seems to feature long periods of inactivity preceding and following short bursts of wild price swings, perhaps the best strategy at this point would be to bracket the market and look for a pop above resistance or a break below support.

This strategy does require a willingness to abandon a trade in either direction that returns to the channel between support and resistance where the USD/JPY is prone to spend extended periods of time.

Traders who are willing to trade the sideways channels for a sufficient number of currency units to make trading the sideways channels worth their while, could employ a strategy of selling at resistance and buying at support. This currency pair does spend an inordinate amount of time in a sideways channel, lacking an obvious trend.

The USD/JPY currency pair is not one to lend itself well to short-term trading strategies. It is a good currency pair from the perspective that the economies of both Japan and the United States are robust and resilient, and well able to accommodate a downturn or a rapid upturn in one or more sectors. This broad-based diversity is what makes the Yen and the dollar highly coveted currencies during times of economic and political uncertainty.

To learn more about world currencies and the Foreign Exchange Market contact Lucror Capital Markets today!

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