USD/JPY Boosted by Post-Election Market Turnaround
James Chen, CMT November 10, 2016 7:09 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.
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