Given last week’s flip flopping in the markets following the FED’s decision to postpone tapering, it’s always useful to take a look at a key market internal for some insight into market sentiment. Once such indicator is the Yen index, which is particularly useful given the Yen’s unique position in the market as both a funding currency and a currency of safe haven.
The Yen index shown here, features the Yen against a basket of four currencies which are all equally weighted, and therefore give us a more balanced view of market sentiment, in my opinion.
From a technical perspective last week’s price action was particularly significant with the index closing at 7748.68, and below the platform of support as shown by the yellow line. Until this point, this level had provided a solid platform which had helped the index recover during late July from the 8000 level, and resulting in a test of resistance at 8450 as shown by the green dotted line.
As a result of last week’s price action we have now finally seen a breakout from the extended phase of consolidation which has lasted throughout the summer, and the next logical level for the index to test is at 7280, last seen in early April.
It goes without saying that the recent congestion phase is well defined on the volume at price histogram, displayed on the left hand side of the chart, and this is likely to add increasing pressure to the downside for the YEN in the short term, no doubt delighting the Bank of Japan.
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By Anna Coulling