Investment case:

  • On Friday the USD/JPY rate set a new low (75.95). We recommend investors to adjust S/L to 75.75 from 75.90. Our target is still 79.50. Risk reward 1:3.

  • This is a short-term recommendation (the USD/JPY rate is in a clear downward trend). Our recommendation is based on an expectation of early intervention. So far nothing has happened.

  • This is not unusual, though. Intervention is decided by the finance ministry and undertaken by the Bank of Japan. It is a political decision and, therefore, it often lags the market. Last time, intervention took place at approx. 77.10 (3/8) ? prior to that the USD/JPY rate bottomed out at 76.30 (1/8).

  • The latest days of trading in USD/JPY excellently show how the FX market works when there is much doubt about the direction. At first there is a test to the downside (red arrow), and when this does not work out, there will be a test to the upside (green arrow).

  • There was no decisive breach this time around.

Risks:

  • Growth will slow further.

  • The euro-zone debt crisis escalates.

  • China sees a hard landing.

  • Bernanke?s speech at Jackson Hole (26/8). Indications of QE3 are expected in the market.

Chart 1 ? USD/JPY

USDJPY

Chart 2 ? Five-year past performance of USD/JPY

USDJPY