Last Friday, an 8.9 magnitude shocked the northeast coast in Japan which generated a gigantic tsunami that swept cities and killed thousands. We, at LaidTrades.com, offer our prayers to Japan especially those who are gravely affected by the disaster.
Such acts of God also have some impact on the financial markets. In fact, Friday’s calamity also jolted the financial markets, particularly the USDJPY pair. As you can see from the chart above, the Japanese yen gained a total of 110 pips in one swift move against the US dollar when the pair fell and closed to 81.82 from an opening of 82.92. You see, the USDJPY has been trading within a symmetrical triangle that is off a downtrend for a little over 4 months now. Friday’s currency exchange actually pushed the pair to the brink of another breakdown.
Concerns about the tragedy’s economic impact on Japan and of course its trading partners continued to linger this Monday causing the Dow Jones Industrial Index, for one, to slip. Meanwhile, the Japanese yen continued to falter when it opened lower at 81.29, causing a breakdown from the symmetrical triangle. Presently, the USDJPY is trading right at the triangle’s support. If this support acts as a resistance then the pair could fall at least back to its previous low at 80.33. Worse, it could even go lower and aim for its downside target 77.50.
Anyway, a lot of you maybe asking why the Japanese yen still gained despite the adversity that Japan suffered. Well, it’s because of risk aversion. You see, traders and investors flee to the safety of the Japanese yen and away from the US dollar in times of adversity. In case you do not know, the Japanese yen has an ultra low interest rate of 0.10% against the US dollar which has 0.25%, giving the former a “safety” feature.