Archived IMT (2010.11.08)

USDJPY LOOK; Despite the Bank of Japan intervention in September and its October announcement to purchase 5 trln yen worth of assets, the yen sticks to its strength against the US dollar. 5 trln yen is the equivalent of no more than $65 bln, which is 10 times less than the total of asset purchases announced by the Fed. This is a clear signal to the markets that the scale of BoJ easing is insufficient to lift up USDJPY. As a result, daily USDJPY continued to respect the trendline resistance starting on May 2010, implying that 82.00 could act as a prolonged ceiling for the pair. This trendline also is in line with the 55-day moving average (blue dotted line). As long as the Fed remains in its path towards easing into Q2 2011 and the Bank of Japan buys no more than 5 trln yen worth of assets. I expect USDJPY to periodically retest 80 until possibly drawing the BoJ into another intervention or expanding its QE beyond 5 trln yen. But before that, we could see extended consolidation around 81-82, a break of which is seen capped at 83, coinciding with the 55-day MA. A break below 79 is not yet ruled out.

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