Despite Japan having raised interest rates (twice) for the first time in several years, the U.S. dollar/Japanese yen pair (USD/JPY) has remained in a broad trading range since December 2005. During this period the pair dropped as low as 109.00 in May 2006 and as high as 122.17 just above the December 2005 high of 121.39 — in January 2007, a level it quickly retested in February before pulling back.
The dollar-yen appeared to be heading back to 116.00 before being waylaid by the “Shanghai Surprise” — the Feb. 27 Chinese stock market sell-off that led to a world-wide decline in equities. Traders suddenly became fearful of ongoing liquidation in global equity markets and bought U.S. Treasuries in a flight-to-quality move leading to big buying in the dollar. The USD/JPY pair had it largest one-day loss in the last 12 months.
How did the Feb. 27 sell-off stack up to the typical day’s trading behavior? To answer that question, we will review 12 months of daily prices from March 1, 2006 to Feb. 28, 2007 — a total of 260 trading days. We will explore the USD/JPY’s typical daily range, close-to-close changes, and the respective characteristics of days that close higher or lower than the previous day.
In addition to this daily analysis, the study will also look at intraday characteristics using hourly data from Dec. 1, 2006 through Jan. 31, 2007. In this case, the analysis is used to identify the most volatile hours of the dollar- yen’s 24-hour trading session.
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