The Yen rose on Thursday against the Euro by over 1%. The European currency slid to a two-week low level of 131.76 EUR/JPY value after breaking an important support level at 132.00.
Why has this happened?
As far as I can tell there are 3 major reasons why the Yen rose so much:
1. Risk has increased – The JPY (and the USD) are known safe-haven currencies. When traders feel that risk is rising in the stock and bond markets, they revert to these safe-haven currencies. With stock and commodities markets declining, an increase in the JPY value was predictable.
2. There is no doubt that the markets have rallied beautifully in the past few months. The shock of the financial crisis has abated to a great degree. But are these rallies based on sound financial data? Many experts believe this is not the case and point to several financial figures which pretty much state that we’re still in a recession. The time for panic may have ended, but we’re not out of the financial woods yet.
This may mean that the rallies have run their course (perhaps even a bit more than they should have) and we’re nearing a correction. This means greater risk which spells well for the JPY.
3. 2009 is drawing to a close with the Christian holidays approaching. Many traders are already consolidating their profits from the recent rallies and are looking for a safe place to store their money without having to watch over it like a hawk. This means less risky investments which again tends to favor the JPY.
Whether these reasons will instigate a further increase in the JPY’s value is anyone’s guess, but it certainly something a wise trader should consider and watch for.
p.s. Have you already claimed you free Forex ebook? If not, do so here: Free Forex Ebook
