Early on Wednesday March 25th US session, in a blink of an eye the U.S. dollar has collapsed against the Euro, Japanese Yen and other major currencies. The trigger was comments from Tim Geithner who said that the U.S. is "quite open" to China's suggestion of moving towards a Special Drawing Right (SDR) linked currency system. If the world adopts the SDR, which was created by the IMF as an international reserve asset, it would mean that countries around the world would need to hold less U.S. dollars. But losses were pared after the U.S. treasury secretary reiterated his faith in the dollar as world reserve currency. White House uses same language; dollar to remain reserve currency for long, long time and Volcker dismisses Chinese proposal out of hand, calls it impractical; blames China for accumulating too many reserves, contributing to the imbalances.
The Chinese government always have reasons for what they say and do. Last week they were questioning the ability of the US to repay it’s debts and this week they have been calling for a new global currency to replace the USD as the world’s main reserve currency plus they called a bottom in the Chinese economy (read “white knight” to the rescue of the worlds’ economies!).
Yesterday was a bad day for Yen with Euros and the Dollars appreciating all the way beginning from the Asian session. Bullish global stock market was the catalyst as traders become less risk aversion.
For today, there will be two big events in the FX market, the Tokyo fix and the London fix, and the end of the Japanese financial year. Rumours doing the rounds yesterday were of “massive” sell interest in USD/JPY.
The Tokyo fix is at 09.50 local Japanese time, which is currently 00:50 GMT and the London fix is at 16:00 local time which is also 16:00 GMT. Generally the Japanese and London Fixes are particularly busy on these days
The Fix is the price in which Banks (& clients) book & balance order flows on the (last) contract price. So even though the rate may change during the day the customer gets the rate at the time of the fix. Importers generally settle their accounts on the 5th, 10th, 15th, etc, of the month before and up until the Tokyo fix at 0:50 GMT. Sometimes, if there is an "excess" dollar demand USDJPY will continue to climb slightly after the fix. Dollar Bulls will also use this as a staging for extending a rally. Dollar Bears (Yen Bulls) will use this to establish better shorts.
Technically, the USDJPY has formed a double top with a tweezer candle and a neckline at around 98.70. The neckline is almost level with the weekly R1 (resistance). Generally, the Asian session overturned the US session. In this case a bullish USDJPY overnite will be a bearish in early Asian session.
The market open at the neckline and below the weekly R1. The B&S and LCD indicated a sell signal (refer to the 1 MTF USDJPY chart below). I took a short position at the aqua color triangle and met my 30 pips objective 12 minutes later.
