USD/JPY bears smelling blood
Fawad Razaqzada June 10, 2019 5:24 PM
The US dollar has started the new week on the front foot after being hammered in the last couple of weeks on rising probabilities of a rate cut by the Federal Reserve. As my colleague Matt Weller noted earlier, traders are now pricing in an over 80% chance of a rate cut by the end of July. Despite this, the USD/JPY fell only slightly last week and was up at the start of this week. The safe haven yen is undoubtedly undermined by the ongoing “risk-on” rally – owing to news that the US and Mexico have reached an agreement over migration, allowing the latter to avoid the 5% tariffs threatened by Trump.
However, once the impact of the Mexico news is absorbed, we reckon the UJ will probably decline further and catch down with the falling US-Japan bond yield spreads – especially if Wednesday’s release of US CPI fails to positively surprise the downbeat expectations. The Fed’s U-turn on interest rates has gathered significant momentum over the past few weeks but the dollar has not made a similar move. Yet. But if the slumping US-Japan 10-year yield spread is anything to go by, then the fact this has made a new lower low suggests the USD/JPY could be on the verge of dropping below the January’s flash crash low over the coming weeks.
A potential resistance area to watch is around 109.00-109.15 on the USD/JPY, which was previously support. This area also ties in with the down trend of the bearish channel and the 21-day exponential moving average. Of course, rates need not get there before turning; essentially what we are looking for is a failure to hold above last week’s high at 108.60ish. The first downside target is the liquidity below last week’s low at 107.80, with the ultimate bearish objective being the low beneath the January low at 104.90. However, a clean break above the aforementioned 109.00-109.15 resistance area would probably invalidate this bearish outlook, until rates find stronger resistance at higher levels.
Source: TradingView 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.