USD/JPY bounces back as Japan signals more stimulus
James Chen, CMT July 11, 2016 1:50 PM
<p>The yen plummeted against its major counterparts on Monday after news that Japanese Prime Minister Shinzo Abe’s Liberal Democratic Party won a landslide victory in Upper House elections, providing much anticipated support for Abe’s controversial economic stimulus program, Abenomics. The political victory was followed shortly after by an announcement that Abe would be implementing additional stimulus measures in attempts to boost Japan’s ailing economy.</p>
The yen plummeted against its major counterparts on Monday after news that Japanese Prime Minister Shinzo Abe’s Liberal Democratic Party won a landslide victory in Upper House elections, providing much anticipated support for Abe’s controversial economic stimulus program, Abenomics. The political victory was followed shortly after by an announcement that Abe would be implementing additional stimulus measures in attempts to boost Japan’s ailing economy.
As might have been expected after such news, Japan’s Nikkei index jumped by nearly 4% while the yen took the opposite route by falling precipitously against the US dollar, euro, and British pound, among other key rivals. In the case of USD/JPY, the yen plunge prompted a substantial boost for the embattled currency pair, which had been trading not far off its post-Brexit multi-year low slightly below 99.00 that was hit just over two weeks ago.
The Abe-driven fall in the yen has led to a sharp USD/JPY rebound off the key 100.00 psychological support level, which has long been seen by traders as a major "line-in-the-sand" in terms of the potential risk of Japanese currency intervention. Prior to Monday’s surge, USD/JPY had been consolidating just above 100.00 late last week, toying with a potential breakdown towards new lows. That breakdown clearly has not occurred, at least for the time being. Currently, the sharp rebound off 100.00 has pushed the currency pair back up to approach key resistance around the 103.00 level.
Any strong breakout above the 103.00 level would be a significantly bullish technical signal suggesting follow-through momentum on the rebound from 100.00. In this event, continued pressure on the yen from new stimulus measures could push USD/JPY up to major upside resistance targets around 105.50 and then 108.00. To the downside, the 100.00 psychological level remains the most important support level to watch on any resumption of the year-long downtrend.
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.