The overbought Japanese yen collapsed after the Bank of Japan intervened overtly for the first time since early 2004. The writing was on the wall and I had warned you. Covert interventions usually supplement the central bank’s efforts, as the amounts it can sell are relatively small. Don’t be tricked if you’ll see other central banks intervening to sell yen; if they do, it will only be on behalf of the BoJ, not as part of a joint effort. The BoJ is known for exaggerating interventions. Finally, please consider that the proximity of the end of the Japanese fiscal year was a big factor is forcing the BoJ to sell yen and suggests that it will attempt to sell more during the next two weeks. This is usually a process that lasts at least several days, but once the surprise is gone, the impact fades.
Except for the Swissy, the other major foreign currency futures open little changed in the US. The Asia/Pacific stock markets closed higher, with the Nikkei up big, all of the European bourses lower, while the gold/oil spread is up. The US indexes are down in pre-open market.
The short-term outlook is sideways to slightly bearish for most of the majors. The medium-term outlook is sideways for the euro, pound and Canadian dollar and bullish for the yen, Swiss franc and Australian dollar. My model is long on the Dow Jones CME FX$INDEX and all of the European and commodity currencies, and short yen.
