Initially, June Japanese Yen investors sold the currency after the Bank of Japan announced more monetary easing measures. On Friday, the BOJ increased the size of its asset purchase program by 10 trillion Yen, meeting some analyst estimates but failing to deliver the aggressive move that some politicians and economists feel the country needs to pull out of its deflationary state. The central bank also pared about 5 trillion Yen from its funding program to banks, citing lackluster demand for loans as the reason for the decision.
The overall increase to its asset purchase program was about 5 trillion Yen. So while traders initially reacted to the announcement by selling the Yen because of the increase in the BOJ asset-purchase fund to 40 trillion Yen from 30 trillion Yen, the intraday trend actually reversed once traders realized that the net gain was disappointing.
Since the central bank's injection into the economy was not large enough to weaken the Yen and it was already priced into the market, traders can look for the June Japanese Yen to hold steady or appreciate over the near-term. Unless the BOJ takes a more aggressive stance against deflation, we're looking at a firmer market.
After taking aggressive action to weaken the Japanese Yen in early February, the central bank appears to have let up on the gas a little and may be risking a 50% retracement of its gains. Since most interventions are eventually absorbed into the market, the key to sustaining the gains following the initial sell-off is to apply significant size in a consistent manner and then be willing to defend your stance.
By putting liquidity in, then taking a little out, the BOJ appears to have relaxed enough to concede, what may turn into a little too much, to the bullish traders. This may indicate that it actually made this move to satisfy the critics when deep down it felt injecting more liquidity was the wrong thing to do at this time.
Technically, while attempting to break out to the downside under the recent swing bottom at 1.2233, the June Japanese Yen found support on an uptrending Gann angle at 1.2277. The subsequent rally took out a long-term downtrending Gann angle at 1.2412. This put the currency in a position to challenge the recent main top at 1.2462. A trade through this level will turn the main trend to up and possibly fuel an acceleration into the major 50% price level at 1.2632.
Over the past 61 trading days since topping out on February 1 at 1.3174 and the past 31 days since bottoming at 1.1889 on March 15, the June Japanese Yen has traded inside of a triangular chart pattern. In technical circles, this is often described as a non-trending chart pattern. Because the support and resistance line gradually converge, daily prices tend to become compressed, often leading to volatile breakouts.
Now that the market is making its move through the downtrending resistance line of the triangle, traders should watch for a possible acceleration to the upside since there is really not a lot of resistance to stop it from rallying over the near-term into the 50% level at 1.2632.
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