USD/JPY: Stage set for breakout

The yen’s weakness has actually been more prevalent at the start of this week. This is partly a reflection of investors’ insatiable appetite for risk as global stock markets resumed their bullish trends despite raised fears over a US-led trade war.

After a three-month rally for the US dollar, the month of July started on the back foot last week as the likes of the euro, pound and Aussie all found some much-needed support. But the yen was lagging behind last week, undermined in part by the fact the Bank of Japan remains one of the most dovish central banks out there. The yen’s weakness has actually been more prevalent at the start of this week. This is partly a reflection of investors’ insatiable appetite for risk as global stock markets resumed their bullish trends despite raised fears over a US-led trade war.

Indeed, the yen’s relative weakness is clear to see as the stock market rally reduces the appeal of the safe haven currency - even the GBP/JPY managed to hit its highest level since mid-June today despite the pound's sizable drop the day before. The EUR/JPY meanwhile has also taken out its bearish trend line, paving the wat for a potential rally towards 132.00 area. So, could the USD/JPY finally break higher and head to 112+ this week?

Despite its hesitant start to the new month, the US dollar remains among the strongest of currencies out there owing to a hawkish central bank. The Federal Reserve is on course to raise interest rates two more times before the year is out and the probability of it doing so could increase should Thursday’s US CPI inflation figures top expectations. If the dollar remains supported after the data is published then a breakout for the USD/JPY would become even more likely.

But the breakout above the USD/JPY’s long-term bearish trend line may occur even before the data is released, but after several failed attempts will it be successful this time around? From a purely technical point of view, the fact that the weekly chart shows price has been coiling in a tight range before this week’s attempt to break higher suggests it may actually be successful this time around. What’s more, the USD/JPY has found a base above its main moving averages. Indeed, the 50-day average has just crossed above the 200-day in a bullish development known as a “golden crossover.” It is thought that when the averages are in this order, some types of trend-following large institutional investors and speculators only look for bullish setup. So with their support, the USD/JPY may finally stage a breakout, especially since market sentiment remains overall positive.

While most technical indicators indeed point to a breakout, we must also prepare ourselves for the possibility of a fakeout. With this in mind, we would expect the bulls to hold their ground above the broken resistance levels such as 111.00 now; failure to do so may be result in some long-side liquidation, leading to a potential sell-off. But the line in the sand for us is now at 110.35 – the base of the latest breakout. A potential move back below this level would probably be game over for the bulls.  

Source: and

Source: and

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