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Will the USDJPY's Extreme Drop Stall or Revive Bear Trend?

Will the USDJPY's Extreme Drop Stall or Revive Bear Trend?

2016-04-29 00:03:00
John Kicklighter, Chief Currency Strategist
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Talking Points:

  • We evaluate how frequently extreme moves occur in the markets - defined by changes four times the average day's move
  • Looking at FX majors, SPX and Oil; we find that extreme moves are just as often acceleration as exhaustion points
  • After its extreme decline, USDJPY faces moderate support and lingering fears of intervention

See the DailyFX Analysts' 2Q forecasts for the Yen, Dollar, Euro, Pound, Equities and Gold as well as our favorite 2016 trading opportunities in the DailyFX Trading Guides page.

The hold on monetary policy by the BoJ last night triggered one of the biggest USDJPY declines in decades. This move carries a lingering tension for the markets. On one hand, there is a standing assumption that large moves are contrarian opportunities and readily mark reversals. We test this assumption by looking back over the past decade of market activity across the Dollar-based majors, S&P 500 and crude oil prices. There are in fact more instances where such dramatic moves have spurred acceleration to existing trends than those that have marked exhaustion and reversal. Context - as always - plays a crucial role in deciding the next important stage. Immediately below USDJPY is moderate support and lurking in the dark is the repeated threats by the BoJ and Ministry of Finance that intervention would follow extreme currency moves. However, risk trends and growing skepticism over central banks' ability to direct exchange rates is a rising wave for the market. We consider extreme moves with a focus on USDJPY in today's Strategy video.

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