USD/JPY Testing Key Resistance at 108.10 Following Another $1T+ Japanese Stimulus Package
Matt Weller, CFA, CMT May 27, 2020 11:19 AM
During today’s Asian session, Japan’s Prime Minister Shinzo Abe and his cabinet approved another ¥117T (USD $1.1T) stimulus package...
During today’s Asian session, Japan’s Prime Minister Shinzo Abe and his cabinet approved another ¥117T (USD $1.1T) stimulus package including subsidies to help firms pay rent, financing help for struggling companies, support for local economies, and health care assistance. This agreement matches the country’s stimulus package from April, bringing the combined total to a whopping 40% of Japan’s GDP as the country tries to limit the long-term fallout from an expected -20%+ GDP decline this quarter.
In what’s become the typical response to Japan’s incomprehensibly massive stimulus measures, FX traders mostly shrugged off the developments as “more of the same” from the developed world’s most heavily-indebted developed country. As of writing, USD/JPY is trading up slightly on the day to reapproach key resistance at its 6-week high near 108.00:
Source: TradingView, GAIN Capital
As the chart above shows, the 108.10 level represents the “neckline” of an inverted head-and-shoulders pattern. For the uninitiated, this pattern shows a transition from a textbook downtrend (lower highs and lower lows) to an uptrend (higher highs and higher lows) and is often seen at significant bottoms in the market.
That said, the pattern will not be confirmed until/unless rates can break above the 108.10 level. If we do see that bullish development, readers could consider bullish trades, with the potential for a “measured move” rally up toward 110.00 in time, though the early April high at 109.35 (not shown) may also serve as resistance. On the other hand, a drop below Friday’s low at 107.35 would invalidate the setup and point toward a deeper drop to the upper-106.00s or lower.
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.