USD/JPY Monthly Analysis for December 2012

Increased demand for higher risk assets drove up the USD/JPY during November. Shortly after the U.S. presidential election, the Japanese Yen showed some strength when traders sought safety against a sharp drop in U.S. equity markets. After U.S. officials vowed to avoid the “fiscal cliff” threatening the economy, equity markets rose, encouraging investors to sell the Yen and buy higher yielding currencies. 

The strong rally in the USD/JPY, following a test of an uptrending Gann angle at 80.123, formed a higher-high, higher-low in November. This move created a new main bottom at 77.123. When compared against the previous bottom at 75.566, a double-bottom may be forming. A trade through the last swing top at 84.173 will not only confirm the double-bottom but it will also change the main trend to up.

 After finding support on an uptrending Gann angle at 80.123, upside momentum triggered another move through uptrending Gann angles at 82.566 and 83.123. The former is likely to provide good support throughout the month. In fact, holding this angle is likely to put an upside bias on the market while a break though it could lead to a near-term sell-off. 

With the USD/JPY in a position to rally further, traders should watch for a potential breakout over the swing top at 84.173. A move through this level is likely to be news driven because traders are betting on a resolution of the “fiscal cliff” problem. This issue is likely to go down to the wire so watch for increased volatility towards the end of the month.