Fasten your seat belts – more turbulence ahead

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The resurgence of the USD versus the JPY continued overnight as the USD/JPY moved past the 101 level towards a high so far of 101.39. A report issued overnight in Japan showed that Japanese investors were net buyers of foreign bonds. This ended a streak of selling that goes back to January 2010. This data showed that the stimulus measures that have been but forth by the Bank of Japan and Prime Minister Abe are pushing domestic investors to look for higher returns overseas.

Update: New Phase of Dollar Storm: USD/JPY highest since 2008, AUD/USD Clinging to Parity

This report is testimony that the moves by the BOJ are working and it also means that there is a good chance the USD/JPY continues to move higher. There have been analyst reports calling for the USD/JPY to hit the 105 level this summer and reach 110 by the end of the year. The move overnight gives credence to these reports. The high overnight over 101.37 is the highest we have seen the USD/JPY in over four years (April 6, 2009).

Technically the currency is well overbought, but traders apparently are ignoring this fact. Resistance now appears at 101.50, followed by 101.70. Support comes in at 100.90 and 100.70.

The USD/JPY wasn’t the only big mover overnight. The Australian Dollar (AUD) continues to fall, breaking through the strong support level at 1.0115. Currency traders now see the currency pair heading towards parity. Big time investors such as Stanley Druckenmiller and George Soros have been selling the AUD in anticipation of further rate cuts by the RBA. Adding to the selling pressure, the RBA lowered their inflation forecast to 2.25% by the end of this year, down from the previous forecast of 2.5%. The central bank was quoted saying “the outlook for non-mining business investment remains relatively weak over the next few months”.

Part of the USD resurgence over the last 24 hours is being credited to yesterday’s very good jobless claims report that has raised speculation that the FED would being to end QE measures earlier than expected. FED officials were mixed on this issue and there has been nothing seen to show if this in fact was true.

The EUR has not been immune to this USD move falling overnight to near the psychological level of 1.3000. After touching 1.3004 overnight, the EUR has moved back towards the 1.3025-35 area. Update: EUR/USD loses 1.30.

As the JPY initially weakened during yesterday’s North American trading session, the EUR initially moved higher as EUR/JPY buyers supported the single currency, but that did not last long and the EUR fell against the USD as did all the other currencies. Support remains at 1.3000, followed by 1.2985. There are some rumored stop loss sell orders below 1.3000 so a break there today could see some quicker moves lower.

The USD/CAD also moved higher overnight coming close to resistance at 1.0100. After looking as if the “loonie” would reach parity earlier this week, the currency has come under pressure along with all the others. Adding to Canada’s woes is the fact that crude oil has dropped below the $96 level. This is Canada’s largest export.

See how to trade the Canadian jobs data with USD/CAD.

Expect the USD rally to continue today. Friday’s tend to have less liquidity in the markets, so it will be interesting to see where the market takes the USD today. As I complete this report, the EUR is now testing the overnight lows and is looking to break the 1.3000 level.

Looks like a wild day ahead. Fasten your seat belts and place your tray tables in the upright position. There will be turbulence ahead.

More: EUR/USD May 10 – Slides After Strong US Employment Numbers

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About Author

Matthew Lifson is a Foreign Exchange Trader and a Market Analyst. with Cambridge Mercantile Group.

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