In a recent article, we outlined our generally bullish view of the Yen and in terms of the JPY, we see it going up on all major currencies with the EUR being vulnerable to major downside against the very oversold JPY. on the chart below we can see how oversold it is against the USD which we covered in a recent article but its also oversold on all other majors including the euro.

BoJ Policy Change

A Nikkei report outlined the view that the BOJ was considering raising its inflation forecasts in January to show price growth close to its 2% target this year and next which has led to speculation that the world's most dovish major central bank will end its ultra-dovish stance.

The first step has already been made when the BoJ Adjusted their yield control on Japanese Bonds in terms of a cap from 0.25% to 0.5% which has seen bond yields rise which we can see on the chart below.

Japan’s Status as a Creditor Nation

The Japanese are the world's biggest investors overseas and much of the capital is parked in eurozone in terms of investments in both bonds and equities. Japanese investors sent huge funds overseas on the BoJ dovish policy but this is starting to reverse and as money flows back to Japan this will firm the JPY.

Risk Sentiment

In terms of markets, we expect risk aversion which will also help firm the JPY.

Despite the fall in the euro speculators have a significant long position on the COT Net Traders Positions and this points to more downside as these speculators exit on stop.

There are two sides to a currency pair of course and in recent articles, we have noted the market is too optimistic about the outlook for the zone and euro – Our view is we have a major downtrend in motion which has further to run on the downside.

Technical Analysis

Below are the key technical levels of support and resistance to look out for in terms of both the monthly and daily charts.