- USD/JPY printed fresh highs on the week above 105.65 in recent trade before backing off.
- The pair, trading as a function of USD flows, broke to the upside above a long-term downtrend on Wednesday.
USD/JPY has picked up where it left off on Monday, grinding higher throughout the European session and into US trading hours to print fresh highs on the week above Monday’s 105.65 peak. The pair has backed off highs very marginally in recent trade but still holds onto gains of roughly 20 pips on the day, or 0.2%.
USD/JPY tracking broad USD dynamics
Wednesday has so far seen a breakdown in traditional correlations between FX markets and other asset classes such as equities. USD has so far been one of the best performers G10 performers on the day, with the US Dollar Index (DXY) rising above the 93.00 level despite higher equity and crude oil prices – the S&P 500 trades with gains of nearly 1% and front-month WTI crude oil futures trading with gains of roughly 1.5%. USD is typically seen as a safe haven asset with a negative correlation to stocks and crude oil.
Despite quite a risk on feel to other asset classes, FX markets have been much more mixed, with GBP amongst the G10 underperformers (not helped by today’s negative Brexit updates) and NZD by far the best performer on the day (following the RBNZ rate decision). JPY sits bang in the middle of the performance table, indicative of the fact that USD/JPY is conforming to the broader USD trend today.
USD/JPY breaks above short-term flag structure and key long-term downtrend
On Monday, USD/JPY saw a big risk on driven pop to the upside following the positive Pfizer/BioNtech announcement regarding their Covid-19 vaccine. Over the next 36 hours or so, the pair consolidated within a pennant/flag structure, but broke out to the upside of this structure during the Asian session, rallying from lows around 105.00 to print fresh highs on the week above 105.65.
Wednesday’s upward move also saw USD/JPY break above a long-term downtrend that links the 1 July 2020, 28 August 2020 and 8 October 2020 highs that the pair had tested, but been rejected by, on Monday and Tuesday. If USD/JPY can close above this trendline, above about 105.40, this will likely be a bullish signal that the grind higher is set to continue.
If so, upside levels of note include the 20 October 2020 high at 105.75 then, above the psychological 106.00 level, the 7 October 2020 high at 106.12. Conversely, if the bears regain control, there is the 50-day moving average (DMA) at 105.27 and the 21DMA below the round 105.00 number at 104.79. Below that, there is little by way of technical resistance ahead of the Monday pre-Pfizer/BioNtech announcement low at 103.16.
USD/JPY daily chart
USD/JPY four-hour chart
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