Daily Report: Yen Tumbles as Japan Intervene for the Third Time This Year, USD/JPY Pressing 80

Japanese yen dives sharp today as Japan intervened for the third time this year. That sent USD/JPY steeply up from record low of 75.56 to as high as 79.50 within two hours. And judging from the price actions, the intervention was done in multiple shot and has been quite persistent. Finance minister confirmed the unilateral intervention and noted in a press conference that he has already warned of "decisive steps" against speculative moves, and thus, he ordered intervention at around 10:25 am Japan time. Azumi also noted that he will continue the move until he's satisfied but didn't mention the target level.

Some analysts hailed Azumi's move as being timed well as yen long positions has piled up after BoJ's announcement of further easing last week. Intervention would be effective in such backdrop. Earlier this year, G7 jointly intervened on yen back in March while Japan intervened unilaterally in August. After the March intervention, USD/JPY jumped from 75.98 to 85.51 in less then three weeks. The impact of the August was relatively weak and brief and USD/JPY rose from 76.28 to 80.23 in three days but then weakened back again and breach the 76.28 low within three weeks. Nevertheless, the impact was relative much larger than August's intervention this time and based on recent turn in market risk appetite in general, USD/JPY would likely rise through 80 psychological to between 82 and 85 in the next two to three weeks.

While USD/JPY takes the spotlight today, it should be noted that AUD/JPY is the strongest pair this month, now at 83.6 level and is more than 11% above last month's close of 74.37. Strong return of risk appetite is one bullish factor while yen intervention is now another . The break of 82.80 resistance today further confirmed that view that whole fall from 90.01 has completed at 72.04 after being support slightly above 71.87 key support level. We're now looking at the prospect of resumption of the up trend from 2008 low of 55.09. Though, a risk lies to tomorrow's RBA rate decision and the AUD/JPY could take a hit if RBA sounds dovish. In any case, we'll stay near term bullish as long as 80.71 support holds and expect a test on 90.01 resistance ahead.

On the data front, New Zealand building permits dropped sharply by -17.1% mom in September. Japan manufacturing PMI rose to 50.6 in October but housing starts dropped -10.8% yoy in September. Main focus in European session will be on Eurozone CPI flash which is expected to moderate slightly to 2.9% yoy. Note that deeper than expected droop will fuel more speculation of ECB rate cut ahead. Eurozone unemployment and UK mortgage approvals and M4 will also be released. From US session, Canadian GDP, IPPI and RMPI and US Chicago PMI will be featured.

USD/JPY Daily Outlook

Daily Pivots: (S1) 75.65; (P) 75.83; (R1) 75.98; More.

USD/JPY jumps sharply on intervention today and reaches as high as 79.52 so far. The strong break of 77.48 resistance as well as the near term falling channel indicates that whole decline from 85.51 should be finished. Near term outlook is turned bullish for 80.23 resistance first and break will target 61.8% retracement of 85.51 to 75.56 at 81.70. On the downside, in case of retreat, we'd expect strong support above 77.48 resistance turned support to contain downside and bring another rise.

In the bigger picture, while the rebound today is strong, USD/JPY is still staying inside the falling channel that started back in 2007 at 124.13. There is still no clear indication of long term trend reversal even though medium term downside momentum is diminishing with bullish convergence condition in weekly MACD. We'd still favor further down side in medium term as long as 85.51 resistance holds and USD/JPY could spiral down further to 70 psychological level. Though, we'll pay attention to the eventual structure of the rise from 75.56 and adjust our view accordingly.

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