Yen Firming on China Shares slide

The JPY crosses has strengthened during since midday New York session.

Early Asian session, JPY strengthened further as Chinese stocks have been hit again. Yesterday’s cautious rhetoric from Chinese Premier Wen Jiabao seems to have hit a nerve there, the official warning “We must clearly see that the foundations of the economy are not stable, not solidified and not balanced. We cannot be blindly optimistic.”

China’s Construction Bank has come out and said excess cash in the banking system has led to asset bubbles. This has underscored concerns that lenders will rein in credit, which is helping undermine market confidence.

Meanwhile a senior government economist Lu Zhongyuan, vice head of the Development Research Centre, has told an economic forum today, that Chinese investors are over-reacting to talk of monetary policy fine-tuning. He feels the recent slide in stocks will be short-lived.

The heavy selling in EURJPY was arrested when the cross touched its weekly pivot point and on 1 HrTF chart, an morning doji star was formed indicating a reversal of trend.

On my 1 min trade, I entered at 6:13 GMT with all indies showed a buy signal. Entered at 134.10 with target price at 134.40 for 30 pips objective. Target reached at 6:41 GMT.

The Yen and the Stock Market

Chart 1

Chart 2

The Yen continued to registered an upbeat mood as wave of risk aversion swept the currency market following the official start of the bear market in Chinese equities, with a 20% decline since Shanghai index peaked in early August (refer to the chart of Shanghai Stock Exchange (SSE) Index -Chart 1).

The Yen longs pushed the EURJPY lower to 132.16 during early New York session yesterday. Refer to chart 2. A bullish engulfing candlestick managed to turn the pair in the opposite direction.

The pair rested at 61.8% retracement for much of late New York session and early Asian session. The Yen weakness was partly due to Asian markets going through gains, as higher commodity prices helped Wall Street to turn positive on yesterday after an erratic opening.

Yen affected by drop in Chinese shares

Japanese Yen shrugged off recent weakness which saw it strengthened with EURJPY pair fall from 137.80 to 135.50 and USDJPY pair slipped from 96.50 to 95.00.

Today, Morning Asian session for EURJPY mirror the previous day movement which saw the pair moved below the opening session and recovered toward lunch time.

When EURJPY touched 135.50, it is at 61.8% retracement from the swing low at 7:00 GMT 12 August to swing high at 12:00 GMT 13 August.

On 1 MTF chart, the 61.8% retracement occurred at 3:41 GMT (the white vertical line). At this level it was also the previous day low( a major support level). I entered 3 minutes later at 135.65 with my target at 135.95 (30 pips target). managed to exit about two hours later.

Early trade indicated that there was some demand for Yen crosses heading into the Tokyo Fix but that demand were quickly abated, with exporters selling USDJPY, putting pressure on yen crosses towards the end of Asian session. The Shanghai Composite was down by 2% and added to the selling pressure of Yen crosses.

Waiting for FOMC

EURJPY cross was under heavy pressure since early Asian opening as the Yen and the dollar strengthened ahead of today FOMC announcement.

There is a general feeling that the FED will tightened its monetary policies earlier than anticipated.

The yen fall from its high in early Asian session at 135.98 to its low during early London session at 134.07.

It than reversed the southward direction and I waited for a pullback to enter. Pullback occurred at 9:00 GMT and at 9:10 GMT I enter with all indicators showing “buy” signal”. Refer to the 1 MTF chart below. My entry was at 134.40 with target at least 30 pips (134.70). EURJPY touched the 200 ema (the red line) at 134.73 and I exited.