USD/JPY rebounds from key support as dollar surges, yen demand falls

USD/JPY saw a substantial bounce from the key 112.00 support area.

The US dollar surged on Monday after the euro took a hit earlier due to reports that German Chancellor Angela Merkel failed to form a coalition government, which markets immediately saw as potentially posing a risk both to Merkel’s position and to German/European political stability. After the news broke and the euro took a dive, the shared currency quickly found its footing once again. Further into Monday trading, however, dollar strength helped pushed EUR/USD back down to approach its lows of the day. Even more pronounced, however, was the strength of the dollar against the Japanese yen, which saw a lack of safe-haven demand as equity markets rallied once again on Monday. As a result, USD/JPY saw a substantial bounce from the key 112.00 support area.

Since nearly the beginning of the year, USD/JPY has been trading in a wide range spanning from around 108.00 to the downside to around 115.00 to the upside. Within this general trading range, there have been a few key support/resistance levels that have repeatedly served as key turning points for the currency pair. These levels include the 114.50 and 112.00 price areas.

Most recently, the past two weeks have seen both the US dollar and stocks falter as uncertainties over the timing and content of US tax reform plans weighed on markets. At the same time, the yen strengthened as these uncertainties helped fuel safe-haven demand for the Japanese currency. This combination of dollar weakness and yen strength was seen on the USD/JPY chart as a sharp pullback starting in early November from the noted 114.50-region resistance level, a price area from which USD/JPY has turned back down several times previously this year.

Currently, price has rebounded strongly from 112.00 support as the dollar has surged and yen demand has decreased once again. This 112.00 level is also around the 38% Fibonacci retracement of the bullish run from early September to early November, so a bounce from this level is technically significant. If USD/JPY is able to maintain its position above 112.00 support on US tax reform progress and continued monetary policy divergence between the Fed and Bank of Japan, a key range-trading target to the upside remains around the noted 114.50-area resistance.

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 or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Open an Account