USD/JPY broke to the downside crushing support at 116.00, 115.00 and 114.00. Japanese yen strengthened as a safe haven amid falling stock markets, concerns about global growth and central banks’ ability to revive the world economy.
Look at the chart. The pair fell to the lowest levels since October 2014. Weekly close below 114.00 will be a very bearish development. Technical picture looks like a reversal.
Japanese monetary authorities have already come up with verbal reaction to yen’s appreciation. Finance Minister Taro Aso said that the nation “will act appropriately if that becomes necessary.” The lower USD/JPY goes, the higher is the risk that the Bank of Japan will directly intervene to the market. The intervention risks exists below 115.00. Note though, that intervention will get more likely in case of a really volatile move in USD/JPY, that means if the pair moves more than 300 pips a day. Note that Group of 20 finance leaders will meet at the end of February. This reduces the odds of intervention. If intervention happens, USD/JPY will gain 2-4 big figures, though the effect should be only temporary. Japanese yen is still undervalued and can gain more. The pair is oversold, and may correct higher, but will meet resistance at 115.00 and 116.00.
The level of 110.00 is regarded as psychologically important on the downside – here players will expect more from Japanese central bank. Below it there won’t be much of support until 106.50 (38.2% Fibo of the 2012-2015 advance).
Japan will release Q4 GDP data early on Monday. Moreover, keep an eye on American data, especially on Wednesday.