The Japanese yen is rallying harsh today towards the bottom of recent support
The main resin behind the Japanese currency's rise still remains unknown, however we could take a guess that some positions have been squared just before we see the newest batch of economic data to come out from the country of the rising sun. The dollar has been rather weak against commodity currencies and the Yen today.
If we look at the current level at 101.74 and we see a great opportunity for tonight's expiry to buy daily calls. If however we look at tomorrow, we would be looking to buy daily puts in the wake of Japanese GDP which will be released later tonight at 23:50 GMT.
The first quarter of 2014 has likely brought forward some consumer spending which has caused forecasts for the quarter to be quite elevated with the consensus estimate coming in at 1.0% quarter on quarter, while the annualized forecast is for 4% growth.
This GDP estimate must be seen in contrast to a likely contraction during the second quarter of 2014 and a merely modest increase in the third quarter. The US data today has shown that signs of inflation are creeping in through the Producer Price Index, which came way stronger than expected at +0.5% in April.
Looking at the chart we see current levels around 101.73-4 as a good call buying opportunity for tonight's expiry, while on the other end of the pond we are seeing a break of 101.60 to bring even sharper drop to test the 101.00-20 area.
If the GDP data surprises on the downside, we could see some renewed pressure on the Japanese Yen and we would be expecting the second round of sales tax hikes in Japan to be delayed. That would certainly spark some fresh volatility in the Japanese currency and a spike higher towards 103 can not be ruled out, however we will have to wait for more information before making that prognosis.