Technical Analysis of USD/JPY for May 16, 2016
USD/JPY is expected to trade with a bullish bias. Last Friday, US stock indices posted another losing session despite encouraging retail sales data (+1.3% month-on-month in April vs +0.8% expected and -0.3% in March). Retail shares continued to weaken, with Nordstrom Inc (JWN) slumping 13.4% and J.C. Penney (JCP) declining 2.8%. And falling oil prices further weighed on stocks. The Dow Jones Industrial Average lost 1.1% to 17535, the S&P 500 dropped 0.9% to 2046, and the Nasdaq Composite was down 0.4% to 4717.
Nymex crude oil settled 1.1% lower at $46.21 a barrel, gold gained 0.8% to $1,273 an ounce and the benchmark 10-year Treasury yield dropped to 1.705% from 1.758% in the previous session.
On the forex front, the US dollar kept rallying against other major currencies as better-than-expected economic data helped to boost expectations of further interest rate increases by the Federal Reserve. EUR/USD dropped 0.6% to a 2-week low of 1.1305 (day-low at 1.1281), GBP/USD declined 0.6% further to 1.4361. On the other hand, USD/JPY slid 0.4% to 108.60 (day-high at 109.48).
Meanwhile, commodities-linked currencies broadly weakened against the greenback, with USD/CAD rising 0.7% to 1.2940 and AUD/USD falling another 0.9% to 0.7263. NZD/USD shed 0.7% to close at 0.6763, again below its 200-day moving average. The pair re-tested the first upside target at 109.40 again last Friday before entering a consolidation. Currently, the level of 108.20 holds as the key support, and the pair is rebounding and breaking above both the 20- and 50-period (30-minute chart) moving averages. At the same time, the intraday relative strength index has returned to the neutrality level of 50 from the downside and is turning up, calling for further upward momentum for the pair. If the pair eventually succeeds in taking out the level of 109.40 (which it tried on each day of May 10-13), it is expected to proceed further toward 109.90 (a key resistance seen in April 20-21).
The pair is trading above its pivot point. It is likely to trade in a wider range as long as it remains above its pivot point. Therefore, long positions are recommended with the first target at 109.40 and the second one, at 109.90. In the alternative scenario, short positions are recommended with the first target at 107.40 if the price moves below its pivot points. A break of this target is likely to push the pair further downwards, and one may expect the second target at 107. The pivot point is at 108.20.
Resistance levels: 109.40, 109.90, 110.45
Support levels: 107.40, 107, 106.55