A Dead Cat Bounce (DCB) is identified when a declining market corrects sharply only to be followed by continuation of the decline. 4 DCBs are identified in Japanese yen crosses. Here are the snap shots:

1) Flash Crash 5/6/2010
The flash crash on 5/6 brought quite a rally int he JPY, or a sharp decline in JPY crosses such as the GBP/JPY. In this daily chart we see the market drop sharply on 5/6. This was basically attributed to massive sell orders accidentally executed. This brought the Dow down 1000 points before stabilizing and recovering. The GBP/JPY dipped heavily as well, but bounced back in the next couple of days. This was a Dead Cat Bounce (DCB), as the market continued to dip.

It is as if the initial decline “lubricated” the path for further decline to materialize.

2) JPY Intervention 9/15/2010:
As the Japanese Yen continued to strengthen, the Japanese government got complaints and pressure form exporters. A strong national currency makes domestic products harder to sell aboard, thus reducing demand for exports. As a major exporter nation (ie. cars, electronics), Japan’s economy can take a hit if the JPY continues to rise. The Japanese Ministry of Finance intervened by selling the yen. The daily chart below of the USD/JPY shows a marabuzo on 9/15.

3) Disaster and Repatriation 3/13/2011
The Japanese yen became very volatile as it was hit with an Earthquake, a subsequent Tsunami, and later nuclear plant crisis. The reason for a stronger yen in this scenario is that repatriation of funds back for re-construction puts upwards demand on the Yen. The CHF/JPY shows an initial strength, followed by a bounce to stabilize the pair, as the market tried to assess the fall out. This dynamic was similar in other yen-crosses as well. Eventually, the forces of repatriation, and risk aversion pushed the yen higher, and the Dead Cat Bounce only lasted to test the SMA 200 in the 1H chart below. Note on the right side of the chart, we have another DCB.

4) Repatriation and Intervention Speculation 3/17/2011
The latest DCB, is not complete, because at the moment, we don’t know if this is actually a V-shape reversal. However, when we look at the 1H chart, we see that the reversal scenario should not be considered unless the market can rally above the triangle pattern just above 129.00. Otherwise, we might be able to expect the market to do what is has done previously during these bounces – to follow through with yen-strength. Refer to GBP/JPY Bounces off Major Support; Bearish Swing Targets 120.00.

The question now is the current bounce a DCB or has yen-strength finally reach exhaustion?
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Fan Yang CMT
Chief Technical Strategist
FXTimes

Information and opinions contained in this report are for educational purposes only and do not constitute an investment advice. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness. FXTimes will not accept liability for any loss of profit or damage which may arise directly, indirectly or consequently from use of or reliance on the trading set-ups or any accompanying chart analysis.