You are missing trading opportunities:
- Free trading apps
- Over 8,000 signals for copying
- Economic news for exploring financial markets
Registration
Log in
You agree to website policy and terms of use
If you do not have an account, please register
USD/JPY Resistance and Overbought RSI Increase Risk of a Pullback
The USD/JPY has been on a one-way track towards higher prices since spiking lower and reversing following the surprising outcome of the U.S. presidential election. The Japanese yen is at its weakest levels since the end of May.
There are signs USD/JPY could weaken here, with the Relative Strength Index giving off an extreme overbought reading, currently near 80. It hasn’t been this overbought since the top in June 2015. The pair is also extremely stretched above all its moving averages and could use time for them to catch up. There is resistance over ¥111 and the 50% Fibonacci retracement level of the sell-off from June 2015 to June of this year at ¥112.22.
It is unclear what will derail the pair at this point, but traders looking to enter long should use caution at these levels as pullback risk climbs. The first level of support on a pullback could be considered just under ¥109, which is the 23.6% retracement of the current advance from November 9 and also overlays with the 38.2% retracement level of the longer-term downtrend.
Tomorrow, the FOMC is set to release its minutes from the early month meeting. It is unlikely this will upset markets too much, given the Fed Fund futures are indicating over a 93% probability of a 25-basis point rate hike at the December meeting. Trading in the FX markets is likely to thin out on Thursday and Friday, as traders in the U.S. celebrate the Thanksgiving holiday.
read more
Japan - Nikkei Manufacturing PMI (prelim, November): 51.1 (prior 51.4)
USD/JPY finds some life even in a quiet market
Now up in 12 of past 15 trading days
It's tempting to think that a market will retrace on a holiday or just ahead of it. The thinking is that traders will take profits and enjoy the time away.
In practice, what we're seeing today is almost always the case. USD/JPY had risen in 11 of 14 days for more than 1100 pips since the election. And today? It's up another 85 pips to 113.35 and continues to scratch out new highs in a dead session.
source
Japan - PPI (services) for October: +0.5% y/y (expected +0.3%)
Don't Count On JPY Correction; Staying Long GBP/JPY
The path of the potential pace of the JPY decline may still be underestimated by markets, which continue trading the JPY long.
While the 10% USDJPY advance from September lows looks impressive from a momentum point of view, it may no thave been driven by Japan’s institutional investors reducing their hedging ratios or Japan’s household sector reestablishing carry trades.
Instead, investors seemed to have been caught on the wrong foot, concerned about a sudden decline of risk appetite or the incoming US administration being focused on trade issues and not on spending. Spending requires funding and indeed the President-elect Trump's team appears to be focused on funding. Here are a few examples: Reducing corporate taxation may pave the way for US corporates repatriating some of their USD2.6trn accumulated foreign profits. Cutting bank regulation could increase the risk-absorbing capacity within bank balance sheets. Hence, funding conditions – including for the sovereign – might generally ease. De-regulating the oil sector would help the trade balance, slowing the anticipated increase in the US current account deficit. The US current account deficit presently runs at 2.6% of GDP, which is below worrisome levels. Should the incoming government push for early trade restrictions, reaction (including Asian sovereigns reducing their holdings) could increase US funding costs, which runs against the interest of the Trump team.
Instead of counting on risk aversion to stop the JPY depreciation, we expect nominal yield differentials and the Fed moderately hiking rates to unleash capital outflows from Japan.The yield differential argumenthas become more compelling with the BoJ turning into yield curve managers. Via this policy move, rising inflation rates push JPY real rates and yields lower, which will weaken the JPY. Exhibit 12 shows how much Japan's labor market conditions have tightened. A minor surge in corporate profitability may now be sufficient, pushing Japan wages up and implicity real yields lower.
USD/JPY Weekly Forecast for November 28-December 2
USD/JPY advanced to new rally highs in last week’s trading, establishing a peak at 113.90 and gaining 2% for the week overall. The gains in the pair occurred as the dollar continued its ascent to new highs. The dollar index is now trading at its best level in more than 13 years, gaining 4.7% since bottoming in early November.
As a result of the gain in the dollar and resulting advance in USD/JPY, the pair is now approaching the next level of resistance at the highs established in mid-February and early March at the 114.445/114.876 zone. On Friday, the pair exhibited signs of hesitation on the approach of this resistance. And, with extreme overbought conditions still a factor, a period of correction or consolidation could play out in next week’s trading.
On the move to the downside, support comes in at the recently broken resistance level defined by the highs established in April and May of this year at the 111.896-111.450 zone. Holding these former highs would keep USD/JPY well-positioned to resume the advance over the near term.
Below this former resistance, clear support levels are scarce due to the steep trajectory of the advance from the November low. Potential support stands at the 110.270 level followed by the 108.550 area. The next clear level of support, however, does not come into play until the next level of former resistance at the July rally high at 107.494.
read more
Japan jobless rate for October 3.0%vs. 3.0% estimate
September jobless rate 3.0%.
Japan Industrial Production (preliminary for October): +0.1% m/m (expected 0.0%
Japan Industrial Production (preliminary, October)