Repatriation Catalyst Behind March Yen Reversal Bottom

Overnight the March Japanese Yen confirmed Monday’s closing price reversal bottom, but the lack of follow-through has set up the market for a near-term correction. Based on the short-term range of 1.2256 to last night’s high at 1.2499, traders should look for a corrective move back to 1.2378 to 1.2349.

The Japanese Yen must make a successful test of this retracement zone if it is going to form a secondary higher bottom. This type of bottom is often indicative of a shift in sentiment. Professional traders seldom try to pick bottoms. Typically, the first rally off of a bottom is short-covering. The first retracement usually attracts new buyers because they have the closing price reversal bottom to lean on. In other words, their exit if they are wrong is a new low.

A successful closing price reversal bottom usually leads to a 2 to 3 day rally equal to at least 50 percent of the last break. Based on the move from 1.3160 to 1.2256, a renewed follow-through rally could take the market back to 1.2708 to 1.2815 over the near-term.


Besides the retracement zone, traders should watch for resistance on the first test of 1.2609 because “old bottoms tend to become new tops”. Additional resistance is at 1.2685 which is a downtrending Gann angle from the 1.3160 main top. Other technical reasons for a possible bottom are oversold RSI and Stochastic indicators.

Fundamentally, traders are saying the March Japanese Yen rallied on speculation that Japanese exporters were taking advantage of recent declines to bring home overseas earnings. Additionally, traders are looking for additional upside action since some Japanese companies and investors will need to repatriate earnings by the end of the fiscal year on March 31. This event is expected to trigger fresh demand.

The combination of a potentially bullish technical bottom and the need to repatriate could be the catalyst the Japanese Yen needs to retrace at least half of its recent break.