- The USD/JPY has reached a new high of ¥107.67, the highest since February 27th.
- The safe-haven yen is sold-off on an improving market mood, and the US Dollar also has reasons to rise.
- The technical picture shows the pair is gaining momentum.
The USD/JPY is trading above ¥107.50 after having reached a high of ¥107.67. The upside move has a lot to do with the upbeat mood of US President Donald Trump, but there are other factors in play.
Five reasons to rise
1) TPP is back: Trump abandoned the Trans-Pacific Partnership in his first days in office. The other 11 nations including Japan and excluding China, continued the talks and reached a deal. Now, with the advice of Larry Kudlow, Trump reportedly wants to get back into the trade pact. Optimism about trade diminishes demand for the safe-haven Yen.
2) Lower US-China tensions: The world’s No.1 and No. 2 economies lowered the tone early in the week and now China provided a trust-building move of sorts. China’s trade balance for March showed a surprising deficit which was mostly due to seasonal reasons. More importantly, the figures showed a surge of Chinese imports from the US, something that will provide some comfort.
3) Syria: Tensions have been running high since the Assad regime bombed its citizens with chemical weapons on April 7th. The US vowed to retaliate and Russia, an ally of the Syrian government, responded with its own warnings. Now we have reports about US-Russian coordination. In addition, Trump hinted that an airstrike may not be imminent. This toning down hurts the Yen.
4) Kuroda reiterates loose monetary policy: The yen received a blow not only due to its role as a safe-haven currency. After some speculation that the Bank of Japan may begin withdrawing monetary stimulus in the Fiscal Year 2019, the Governor of the BOJ Haruhiko Kuroda stated that accommodative monetary policy is here to stay.
5) Higher chances of a US rate hike: It is not only the selling of the Japanese Yen but also some strength of the greenback. US inflation came out as expected at 2.4% YoY on the headline on 2.1% on the more significant Core CPI. Nevertheless, the rise from 1.8% YoY represents a shift up in prices, something that supports more rate hikes. In addition, the FOMC Meeting Minutes revealed that officials are more confident about the economy. The probability of a rate rise in June has topped 80% and four moves in 2018 seem like a likely scenario.
All in all, the USD/JPY has all the reasons to rise. Later today, the University of Michigan releases the preliminary Consumer Sentiment report for April, which is expected to show a similar level to that of March. Tweets from the President and other political developments may have a bigger impact on the pair.
USD/JPY Technical Analysis: Bulls reign
The USD/JPY is not only trading at the highest levels since February but also broke above the 50-day Simple Moving Average that capped it for a long time. It currently stands at ¥106.90. The RSI is moving higher above 50 but still maintains a safe distance from overbought levels of 70. Momentum is accelerating.
Looking up, the mid-February high of ¥107.90 is getting close. It is followed by ¥108.50 that served as support early in the year. Beyond this level, ¥110.00 is the obvious cap.
Immediate support is at ¥107.50 which was a swing high in mid-March. Further support is found at the round number of ¥107.00 that capped the pair in March, just above the 50-day SMA. Another line to watch is ¥105.90 which worked in both directions during March.