USD/JPY in focus as stocks turn volatile, ahead of key US data
Fawad Razaqzada December 6, 2017 8:11 AM
Investors’ focus will turn away from US politics and towards economics as we head into the second half of this week. Key employment and wages data will be released this week in the form of ADP private sector payrolls data (today), official non-farm employment report and average hourly earnings index (both on Friday). If these macro pointers suggest that the world’s largest economy remains on track to end the year on a positive note, then the dollar could finally find some good support at a time when there is also some progress on the tax reform bill. Otherwise, the downtrend could resume especially against stronger currencies, such as the Canadian dollar or the euro. The dollar’s best chance of a revival is against currencies where the central bank is still dovish, such as the Japanese yen. The yen has actually been firmer of late owing to its status as a safe haven asset, as a result of a pullback in the stock markets, especially in the technology sector. But it may be too premature to call this the start of a stock market correction as the major US indices still remain very close to their record high levels. Thus, if sentiment in the stock markets turn positive, then the USD/JPY could be the one to watch for a potentially sharp recovery.
USD/JPY testing key short-term support
After again defending the key 114.35-114.75 resistance range in early November, the USD/JPY went on to close the month lower, breaking its two-month winning streak. The long-term downward-sloping trend line, which has been in place since summer 2015, therefore held again. But I continue to expect the trend line to breakdown at some point because of fundamental reasons: as the disparity between the Fed and BoJ’s monetary policies continue to grow, the USD/JPY should, in theory, push higher. As such, I would be interested in looking for signs of support around key technical levels. In this regard, the weekly chart of the USD/JPY actually looks quite bullish, as things stand. After all, the previous downswings both in September and November ended at previous key support levels, with price also creating false breakdown patterns, which are reversal signs. But the USD/JPY does need a break in market structure before we and the trend turn decidedly bullish. So, we will remain patient and see if that key 114.35-114.75 area eventually breaks. Still, we will look for support at key zone to hold. In this regard, the 112.10 is very important as it roughly marks last week’s close when price formed a green weekly candle above the 21-period exponential moving average. If we don’t see a quick rebound here then my bullish idea is probably wrong. Still, I would only drop my view in the event price breaks below the next support at 111.00.
Source: eSignal and FOREX.com.
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.