- USD/JPY has been up to test the 200-D SMA.
- The dollar is broadly bid and the dip has held at 109.88, so far.
- On the wide, the 112.30’s, (Fibos at 112.22/33) remain key upside target.
USD/JPY has been up to test the 200-D SMA, a level where a break out could be on the cards. The dollar is broadly bid and the dip has held at 109.88, so far, and above the key kijun level where closes need to stay above to confirm a bullish signal.
USD/JPY has been threatening a breakout for a number of days, with eyes on the 110.47 Feb high while traders continue to price in a rate hike from the Fed as soon as next week.
“The outlook for relative central bank policy is dominating as market participants assess the latest comments from ECB Chief Economist Praet expressing confidence in the euro area’s underlying strength and the governing council’s ability to reach its inflation target. Next week’s meeting is ‘live’ and policymakers are expected to discuss an end to asset purchases, paving the way for rate normalization in the second half of 2019,” analysts at Scotiabank noted.
The return on inflation and geopolitical concerns
However, the return of inflation should not be a supportive factor for markets in the long run, and the recent risk-on turn in the G10’s may be a short-lived theme. So far, the US economy is proving itself to be on a solid footing, with lower unemployment, a higher participation rate and wages on the rise and those are what have been supporting the greenback in recent sessions. The stock market, however, has been somewhat consolidative throughout May and the start of June, keeping a lid on USD/JPY below 110.00.
The DJIA may need to break out above 25000 to fuel a bid through the 110 handle with bullish eyes towards a key resistance level at 112.11, being the 2015-2018 downtrend. However, Japanese exporters and the possibility of a hawkish outcome from the ECB could well anchor the progress on the 110 and 111 handles. Should the FOMC prove to be a sell the fact play on the dollar, the downside is back in play. Also, geopolitical risks are simmering away in the background, making for a shaky foundation on the 109/110 handles for the bulls.
USD/JPY levels
Bulls remain in control above the 50 & 100-DMA crossover while spot lingers around 110.00 and above the kijun around 109.80. Bulls look for a close above the 200-D SMA at 110.19 where they could then target 111.50 as an option barrier that stood strong previously, (just above the 111.39 May high). On the wide, the 112.30’s, (Fibos at 112.22/33) remain key upside target. 108.10 guards a run towards the mid-107.00s with the 2018 low at 104.56 in focus on the downside.
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