- USD/JPY is starting out the week pressuring the 21-D SMA having pierced below in the prior session at 110.68.
- Rallies continue to be very well capped.
- The week ahead should offer some foundations again.
- Trump has proposed imposing more tariffs on Chinese imports.
- Traders may wish to focus more so on central bank divergence and the US/JPN spread advantage for the dollar with the Fed around the corner.
USD/JPY is starting out the week pressuring the 21-D SMA having pierced below in the prior session at 110.68 with fundamental support coming in while the greenback takes up part of the safe haven flows in line with the yen and CHF.
The pair has been parked between familiar ranges since August’s break to the upside in a correction from the July bear trend lows down at 109.77. Indeed, at this juncture, having snapped back from a double-top area towards the ceiling of the daily Bollinger bands, the pair is now at a crossroads having failed at 111.75/82 and testing the midpoint of the recent ranges. Fundamentals are supporting the case for a strong dollar yet the yen keeps picking up demand on the same safe haven psychology in the markets.
Trae war angst drags, but dollar to pick up further demand in the week ahead?
The week ahead should offer some foundation again for a separation of this demand that could well support the upside again in the pair, despite a well documented technical downtrend in the pair. Traders may wish to focus more so on central bank divergence and the US/JP spread advantage for the dollar with the Fed around the corner and key data inputs coming up this week.
- The week ahead: US payrolls and looming tariffs – Nomura
However, trade wars may well overshadow the nonfarm payrolls on Friday after Trump has proposed imposing more tariffs on Chinese imports. For the time being, it appears that trade war risk has dragged USD/JPY towards the cloud base at 110.6 but what should be noted is that yen buying is far more evident vs other currencies on the same noise than the dollar, especially in the high-betas and EM-FX. US 10-year yields have based down at 2.81% and a pickup recovery back towards the psychological 3.00% mark should underpin the upside in the dollar that has moved back through the H&S neckline and that is stabilising on the 95 handles in the DXY – 95.70 will confirm the H&s failure – (current spot is 95.21 at the time of writing).
USD/JPY levels
LMAX Exchange Research Desk explained that “rallies continue to be very well capped, with the medium-term outlook still favouring lower tops and lower lows. Look for a daily close back below 110.00 to strengthen the bearish outlook, opening the door for the start to a move back down towards 108.00 which guards against the 104.60 area 2018 low.”
Valeria Bednarik, chief analyst at FXStreet explained that in the daily chart, the pair bounced on Friday from its 100 DMA, while technical indicators posted modest recoveries from around their midlines but lack enough strength to suggest further gains ahead:
“In the 4 hours chart, however, the risk is skewed to the downside, as the pair is trading below a mild bearish 200 SMA, while the Momentum indicator heads south within negative levels and the RSI aims higher around 48, this last reflecting the latest short-term recovery rather than suggesting additional advances.”
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