JAPANESE YENFUNDAMENTAL BACKDROP
The related safe-havenJapanese Yen rallied this week with the Evergrande crisis gaining traction and devastating global markets. Investors are exhibiting risk averse behavior which may be premature but prefer to err on the side of caution. The Japanese bond market echoes this sentiment as foreign investment increases (see graphic below) and may continue should the current uncertain macroeconomic backdrop endure.
JAPANESE AND U.S. CENTRAL BANKS TO MEET TOMORROW
Source: DailyFX economic calendar
Markets will be tuned in to an impending taper which and guidance on how the Fed will go about recent data which include inflation figured far exceeding the average 2% target (yellow), lackluster jobs data (purple) and lingering COVID-19 concerns (pink) – refer to graphic below. This could delay a quicker start to tapering current asset purchases and support additional Yen strength.
USD/JPY TECHNICAL ANALYSIS
USD/JPY Daily Chart:
Chart prepared by Warren Venketas, IG
The daily USD/JPY chart above outlines the weeks fall as price action tests the symmetrical triangle support line (black). Prior attempts to break and close below the 38.2% Fibonacci 109.25 (Fibonacci taken from June 2015 high to June 2016 low) level have been unsuccessful but a confirmation close below this area of confluence may open up further downside opportunity.
Key resistance levels:
- 100-day Exponential Moving Average (EMA) – yellow
Key support levels:
- 109.25 – 38.2% Fibonacci level
- 108.72 – August swing low
IG CLIENT SENTIMENT FAVORS SHORT-TERM DOWNSIDE
IGCS shows retail traders are currently net long on USD/JPY, with 55% of traders currently holding long positions (as of this writing). At DailyFX we take a contrarian view on sentiment which suggests further downside on the pair.
— Written by Warren Venketas for DailyFX.com
Contact and follow Warren on Twitter: @WVenketas