USD/JPY Boosted by Post-Election Market Turnaround
James Chen, CMT November 10, 2016 2:09 PM
For USD/JPY, the whipsaw in sentiment has been magnified because the dollar’s moves were intensified by strong yen moves. During Tuesday night’s election, when it became increasingly evident that Trump had a plausible path to victory, the US dollar plunged as expected. Also as expected, substantially heightened perceptions of market risk helped to boost the safe-haven Japanese yen. Together, the dollar drop and yen rise prompted a sharp plummet for USD/JPY all the way down to the 101.00 level before bouncing.
By Wednesday’s trading session, this downside overreaction for USD/JPY was entirely reversed, as the dollar rapidly recovered and renewed risk appetite in the aftermath of Trump’s win pressured the yen. This prompted a surge for USD/JPY above both its 200-day moving average and major resistance around the 105.50 level. Thursday saw extended dollar strength and yen weakness, pushing USD/JPY further up to break out above a key downtrend line extending back to February. In the process, USD/JPY hit a new three-month high just short of 107.00.
Previously, this bullish price action was much more expected in the event of a Clinton win, but it has apparently become the scenario for Trump’s victory as well. In addition, dollar strength has been further bolstered by the lack of post-election volatility and continued expectations that the Federal Reserve will raise interest rates in December. St. Louis Fed President James Bullard said on Thursday that he sees a near-term rate hike coming, although rates will likely remain low for years.
With further dollar strength in the run-up to the next Fed meeting in mid-December, as well as continued Trump-driven market optimism, USD/JPY is likely to continue rising. To the upside, the next major resistance targets are around the 108.00 and then 111.00 levels.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.