The dollar seemed on the fast track to cruise past 100 yen and beyond recently. During the six week long stock market rally, the dollar surge to a high point of 101 yen on April 6th. However, as the Dow has flattened and held above 8,000 the last couple weeks, the dollar’s momentum against its Japanese counterpart has waned.

One dollar currently nets 96.84 yen in Tuesday evening trade. After its brief jump over the century mark, the greenback has been on a steady decline. After opening the week of April 13th still above 100 yen, the dollar dipped to around 98 yen to start the week of April 20th and has steadily dropped since.

Short-term charts indicate that the dollar-yen ratio is in a very precipitous spot. The dollar breached short-term support at the 50 day simple moving average (SMA) near 98 yen and is currently a little over one year below. This short-term level around 98 will now likely serve as some resistance to a quick rebound for the ratio. If the dollar continues its decline, the next two significant near-to-medium-term support levels come in around 94.5 yen and around 88 yen. While not likely to happen anytime soon, a powerful breach of 88 yen could spell trouble for the dollar.

A quick near-term reversal of the dollar-yen could provide a retest of near-term highs around 101 yen. Should the dollar manage to gain conviction from improved consumer confidence, announced Tuesday, and other economic data and sentiments, momentum could take the dollar to an important resistance level in the 104-105 yen range.

With the US Central Bank expected to maintain a zero per cent interest policy for a while, and Japan’s Central Bank settled at a .1 per cent overnight call rate, interest yield has little impact on current currency moves. Changes, or expected changes, in interest yields can strongly impact currency direction. Higher yield currencies usually have more positive demand if economic situations are precisely equal. Since the US and Japan are steady near zero per cent, current trade is largely speculative. Traders are mostly betting on prospects for which economy is likely to turnaround more quickly.

US Consumer Confidence rose drastically to 39.2 in April, according to the New York-based Conference Board. This was the highest reading since November’s 44.7, and it blew away economist expectations of a 29.5 reading, and March’s revised 26.9 reading. While earnings and data have still been somewhat mixed. Bottoms in several key sectors appear on the horizon. Growing consumer confidence might be good news for struggling retailers. Perhaps the US economy is tops on the list of most likely to recover soon, which would bode well for the dollar, and could help push the dollar past 100 yen.

Neil Kokemuller
10:53 PM EST
Tuesday, April 28, 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.