As part of its overall weakness, the US dollar is having a difficult time piercing the 100 yen level. After topping the century mark in early April, and then again in early may, the greenback has steadily fallen back from the level. In mid-May, one dollar was worth 94 yen. After a modest bounce, in the last couple days, the value of a dollar is currently (Jun 19) at 96.57 yen.

After starting the year at a low point of 88 yen, the dollar-yen ratio has traded mostly in a narrowing range of trade from around 93 yen to a high level of 101 yen. At some point, a serious break above or below either level should give some indication as to which direction the currency pair is going to take next. For the time being, the US and Japan economies are trading poor data reports, with both operating at low or no interest rate levels. There has simply been no catalyst strong enough to cause a surge in either direction.

A more medium term look at the dollar and yen actually provides a tighter range of trade. In the last month, the ratio has traded in about a four pip range, with a low at the low 94 yen mark to a high level in the low 98 yen area. A move over 98.5 yen or below 94 yen could provide some movement in the medium term. The 93-94 yen range is an important medium to long-term support level for this currency ratio. A significant break below could produce a retest of the 87-88 level fairly quickly.

It is interesting to see the dollar-yen currency pair trading in a modestly narrow range for four months. This currency ratio was symbolic of the long-running carry trade that saw wild swings in trading pairs involving the yen. While the world economy was flourishing, the yen was operating at low to no interest rate yields. This led to many speculators carrying higher yielding currencies to leverage the low or no interest borrowing rate on the yen.

The dollar reached a high of 125 yen in mid-2007 and fell to a low below 88 yen in 2008 and again in early 2009. When the world economy started to struggle, carry trading saw severe unwinding as speculators jumped out of risky speculation and into safer investments like gold and other low-risk opportunities.

Now that most of the world economies are waiting to see if recovery takes hold later this year, there is not much driving trade against the Japanese currency. The dollar offers no interest yield to go along with a struggling economy and specifically, credit and housing sectors. Commodity prices have climbed as well, which usually correlates to a weaker dollar. Range trade is likely to continue for the dollar-yen until either economy shows obvious signs of change, one way or the other.

Neil Kokemuller
8:49 AM EST
Friday, June 19, 2009

Neil Kokemuller is an Associate Professor of Marketing at Des Moines Area Community College in Des Moines, Iowa, USA. He has a MBA from Iowa State University. He is also in house stock market commentator at Live Charts UK, where you can find real time charts and share prices.

Please note: The information provided in this article is intended for informational and entertainment purposes, and not as advice for financial decisions or investments. Actions taken on the basis of the information shared is at the sole risk and discretion of the individual. Currency investment poses significant risk of loss.