Yen price squeeze, breakout ahead

Yen has moved to a small range against Dollar, since August when equity markets sold off sharply around the world after China chose to devalue Yuan officially. Yen had gained massive over that sell off. Dollar/Yen dropped from 124.3 to 116 just in four days.

However price action has been more subdued since then. 5 day average of realized volatility as measured by Average True range (ATR) dropped from 260 pips t just about 96 pips as of today.

However price action is strongly suggesting there could be volatile days ahead as well as a breakout against Dollar.

As shown in the chart, price action is getting severely squeezed.

Fundamentally speaking, Yen is facing downward pressure over Bank of Japan's (BOJ) continued monetary easing, whereas equity markets weakness is keeping it well bid.

Moreover, BOJ's massive easing has so far failed to boost economy in any meaning full way, which is leading to exodus of foreign money out of the country. This is likely to result in rapid unwinding of long Nikkei, short Yen trade, if situation so arise.

Technically speaking Relative strength index is suggesting breakout could be well on the downside. Kindly note it is not an absolute certainty though.

Stay cautious and stand ready for action if breakout occurs.

Yen is currently trading at 119.6 against Dollar.