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The Greenback Goes ‘Sayonara’

Posted by Larry Doyle on July 8, 2009 5:09 PM |

With risk aversion running rampant once again through our domestic markets, we saw a significant flight from the U.S. dollar into the Japanese yen today. The U.S dollar was close to parity versus the Japanese yen a few months back but has since broken down by over 7%, a significant move within currency markets.

As Bloomberg reports, Dollar May Drop to 14-Year Low Against Yen:

The dollar may drop beyond a 14-year low of 87 yen if it closes below a “neckline” level of 94.08 yen, according to technical analysts at Citigroup Inc.

A support level at 94.08 yen represents the neckline of a so-called head-and-shoulders pattern, Citigroup analysts Tom Fitzpatrick in New York and Shyam Devani in London wrote today in a note to clients.

Sure enough the dollar did take out neckline at 94.08 and closed today’s trading at 92.65. For those who care, a ‘neckline‘ and ‘head and shoulders‘ pattern are standard technical terms within trading used to define price graphs. Our investing primer, to which I have linked, provides great definitions and pictorials.

Having taken out the neckline, what is the targeted level for the dollar versus the yen? Bloomberg offers further color:

that would “suggest a more aggressive downside target of sub 87,” the analysts wrote. The dollar touched 87.13 yen in intraday trading on Jan. 21. It was last below 87 yen in July 1995.

Sayonara!!

LD

  • lizzy

    LD,
    Do you have any background as to why the dollar is weakening specificaly against the yen? Is it fairly stable against other curencies?

  • Lizzy,

    The greenback is fairly valued against other currencies, away from the yen.

    In my opinion, the moves in currencies go back to outlooks for the global economy. Go back to the story I wrote about about GDP projections from the IMF. Where is the growth going to come from?

    The emerging economies primarily in Asia. What is the biggest and deepest currency in that region? The yen.

    In my opinion, that is the reason for this shift.

  • lizzy

    Thanks for the explanation LD. It makes a lot of sense; I was thinking more in terms of some of the earlier posts about the BRIC nations pressure on the dollar so it was confusing.

  • TeakWoodKite

    I gather that this will give more momentum to the move away from the US dollar as the “world currency”?






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