Life above 100.00 with Forex

Conspiracy theories abound as to why USDJPY slammed through 100.00 on what was a fairly quiet NYC afternoon. My personal favourite so far is from a story in the Wall Street Journal that a single trader took advantage of quiet markets, and started bidding up USDJPY in 10 pip increments, happily thwarting the sellers. Could this individual trader perhaps be the BOJ? Who knows, but if the move was down to a single trader they must have extremely deep pockets.

Could Big Ben disrupt the USDJPY party?

Another theory also leads to the WSJ and an article saying that Fed governor Ben Bernanke's speech today will lay out the Fed's plan for tapering QE purchases. Bernanke speaks at a conference at 1430 BST, 0930 ET, however QE is not on the agenda and this article is proving almost impossible to find. Big moves around big levels like 100.00 in USDJPY always lead to rumours.

Conspiracy theories aside, the move above 100.00 was always on the cards, after all dips in this cross recently have been fairly shallow. The ferocity of the move once we got above this key level should also not be a surprise, as it triggered a wave of stops encouraging even more buying. However, a 250 pip move in one day is unique and we don't expect this to be replicated today. In fact as we lead up to Big Ben's speech USDJPY has ground to a halt around 101.30-45. There is a key resistance zone between 101.30-70, and taking a breather at this level is perfectly normal.

So where will USDJPY go next? In the short term the market may be cautious ahead of Bernanke's speech, and if he doesn't talk about tapering QE then we could see some downward pressure on the dollar. In the very short term, 101.10 - the daily pivot - is a key support level. We are starting to look overbought, and the bearish reversal in the hourly MACD (a key momentum indicator) suggests a pullback could be on the cards. Below 101.10 opens the way to 100.70 - the 21-hour moving average, and then 100.20 - the top of the monthly Ichimoku cloud.

A new paradigm for USDJPY

Yesterday's price movements herald a new paradigm for USDJPY, and due to the technical levels that have been breached, it will take an almighty dollar negative event to push USDJPY back below 100.00, in our view. But there are some event risks for USDJPY bulls: firstly Bernanke's speech later today and secondly retail sales on Monday. Can the dollar and US Treasury yields continue to push higher if the economic data disappoints?

Will official patience with the Japanese run short?

The yen side of the equation is also worth considering. JPY has fallen sharply across the board, with many yen crosses breaking out to 4-year highs. This weekend the G7 finance ministers and central bankers meet in London, it will be interesting to see if they say anything about the speed of the yen's decline. In the recent past the international community has supported the BOJ's action and not criticised the slump in the yen, however it's hard to see this lasting especially if we continue to see a rapid decline in the Japanese currency. Will Germany, who has a similar export mix to Japan, be happy to continue to see a weak yen? I think Chancellor Merkel may have something to say about that, especially as we lead up to Federal elections in September.

EUR and AUD at important levels

Elsewhere, the dollar is strengthening across the board as US Treasury yields breach some important resistance zones. The 10-year yield is above its 200-day and 50-day sma, and is testing 100-day sma resistance at 1.85%. USD crosses are testing some key support zones, EURUSD is close to 1.30, although 1.2990 - the 200-day sma on the close - is holding as support for now. AUDUSD is also under pressure and seems to be on its way to parity. It is currently below 1.0150- prior key support, on the back of some concern that Australia's export industry could get hit from this fall in the yen as Japan is Australia's second largest trading partner. Below 1.0135 - the low so far today, opens the way to 1.0000 then to 0.9970.

Bernanke's speech and Canadian employment data are the highlights this afternoon. USDCAD recovered yesterday along with the broader dollar rally; however it is lower this morning after hitting resistance at 1.0090- the 100-day sma.