The world of currency trading has been on extreme volatility so far this year because of all the financial crisis major economies have been experiencing. So if you ask me what currency has been performing well, 2 answers come to mind. One is the Swiss franc and the other is the Japanese yen. In this section, I’ll talk about the latter.
Gone are the days when investors worldwide consider the USD as a pure “safe haven.” In some degree, it still is but this monicker has obviously been taken away by the likes of the Swissy and the yen. What ultimately led to this was the fact that the US economy has not been showing any signs of improvement at all after bouncing a bit from the deep recession that it recently had. If you remember, the US Federal Reserve of the Fed already signed off 2 quantitative easing programs to spur liquidity and to jump start business activity but to no avail.
Fast forward to 2011, the US, which was facing a record mountain load of sovereign debt, was forced to increase its debt ceiling just to avoid a default. Doing so, however, do not take away the fact that overall economic activity is still slumping. Given this and a new threat that the country would once again fall into a recession leave the Fed, at least from their end, no choice but to consider a round 3 of quantitative easing. Well as you know, doing so would devalue the USD because of the increased money supply. Naturally, therefore, the USD would weaken against the other majors. Foreseeing this, investors would avoid and even dump the buck, which could cause the currency depreciation to be faster.
Aside from the Swissy, the Japanese yen appears to be where the money is flowing. As you can see from its chart above, the USDJPY pair has been on a major downtrend for more than a year. This means that the yen has been kicking the USD’s behind for a long time now. Well the JPY has recently marked a new all-time high against the USD (all-time low for the dollar and for the pair) at 75.95 last August 19, 2011. The pair, though, looks to be pausing for a while. In my opinion, it could temporarily rally back to its former low at around 80.00 to 80.50. Given its present downtrend, though, the USDJPY pair would more likely fall unless the downtrend line gets broken and the pair shows a sign of reversal. Until that time, expect the pair to resume its trek south over the longer term.