- USD/JPY drops to key support area on global growth concerns.
- USD/JPY is currently trading at 109.15 as bears seek to take out the 21-D SMA at 109.08 to open the floodgates towards the 107.76 9th Jan swing low as the US dollar loses its safe-haven appeal.
USD/JPY has dropped following a scramble out of stocks and the dollar, into US treasuries and safer havens. The cooling Chinese economy, risks to global growth and the US government partial shutdown in its 29th day has sounded the risk-off alarm bells fuelling a bid for the yen and even sterling following upbeat labour market data in the absence of bullish momentum elsewhere.
” UK jobs rose 141k in the three months to November, up from 79k in October. Average hourly earnings (ex-bonuses) rose 3.3% y/y. That was in line with expectations and the fourth month they were above 3.0%. The unemployment rate dipped to 4.1%,” analysts at ANZ Bank reported.
US stocks extended their losses to near session lows after the Financial Times reported that the U.S. turned down China’s offer of preparatory discussions while a lack of progress on force technology transfers and potentially far-reaching structural reforms to China’s economy appear to be at the nuts and bolts of the current deadlock. While such news would usually fuel a bid in the greenback, the US’s partial government shutdown is also becoming a concern in the markets, as it expected to strip the US GDP rate of 0.1% every two weeks that the shutdown continues and will also distort US economic data reports. At the time of writing, the Dow is down -1.55%, S&P 500 is down -1.63% and the Nasdaq is down -1.96%.
At the World Economic Forum in Davos, billionaire investor Ray Dalio chastised monetary policymakers for an “inappropriate desire” to tighten faster than the capital markets could handle. US yields are also lower, with the US 10 years -1.91% at 2.7320, at the lower end of the day’s range of 2.724/2.780.
“It is difficult to see what will shake the markets out of their risk-off tone in the near term as lead indicators of growth continue to wane,” analysts at ANZ Bank argued.
USD/JPY levels
All in all, the yen is capitalising on the fundamentals and a break of 109 handle would be significant. However, we have the 21-D SMA to conquer first at 109.08 ahead of the 10-D SMA at 108.83. The 38.2% fibo retracement at 108.63 which served as a solid resistance line following the flash crash reversal, but gave out on the sell-off is the last defence for the 107.76 9th Jan swing lows.
DXY has an ATR if 50 pips, so there is still some room to go on the downside should the bears pursue and USD/JPY has an ATR of 80 pips, so a test of the 109 handle is still fesible at this juncture before a significant correction back above 109.32, prior swing low, might come into play.
Analysts Commerzbank argue that intraday Elliott wave counts remain negative and the daily Elliott wave count continues to indicate failure at 110.30:
“We would then allow slippage back towards 107.75/50 and possibly the 104.10 spike low. The recent move lower was exhaustive and we suspect that this will hold for now. Above 110.30 will allow for a retest of the 111.38 the 26th October low. Support at 104.63/10 guards the 100.70 Fibonacci support and the 99.00 2016 low. Initial support lies 107.77, 10th January low.”
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