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USD/JPY: bulls troubled below 112 handle while bears eye a break of critical support

  • USD/JPY has started out in Tokyo mixed while trading below the 112 handle after the pair dropped to the 111.60’s in early NY trade.  
  • USD/JPY is trading within the dominant derisking theme in markets with the fundamentals staked up against the dollar for the meanwhile.

USD/JPY is currently trading at 111.86, a couple of pips shy of the Asian session high and up from a low of 111.73. Continued derisking in markets on Monday sent the pair off a cliff to test a crucial support level that is made up of the August low and the 61.8% of the Aug-Sept rise.  

Investors remain cautious

Meanwhile, with investors still cautious over the recent rout in stock markets, the dollar has lost its safe-haven status over a number of variables that are reasons to stay pessimistic on the dollar’s near-term future.  If the dollar cannot play catch up with rates or rally on strong economic fundamentals, it might be considered as expensive. Also, the Fed rates are near the peak and some may presume that the US economy is set to slow while Eurozone growth will pick up.

However, there are still plenty of factors going for it and one major sticking point is that when push comes to shove, it is the world’s reserve currency and there is a massive shortfall in troubled EMs indebted in the dollar. Meanwhile, the market tone remains dominant as market participants consider the balance of risk in the aftermath of last week’s turbulence which continues to favour the yen for its safe haven status.  

USD/JPY levels:

  • Support levels: 111.50 111.20 110.85
  • Resistance levels: 111.90 112.25 112.60

From a technical point of view, and according to the 4 hours chart, Valeria  Bednarik, Chief Analyst at FXStreet noted that the pair is bearish:

“It further fell below  its  100 and 200 SMA,   both lacking directional strength well above the current level, while technical  indicators  have managed to correct partially from their daily lows, but have lost directional strength, settling well into the red. A key support for the upcoming sessions is the 100 DMA, which stands a few pips below the daily low, around 111.50, providing a strong dynamic support that once broken, should lead to a steeper decline during the upcoming sessions.”

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