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Japanese Yen Strength Against USD Probably Worth Chasing For Now

Japanese Yen Strength Against USD Probably Worth Chasing For Now

David Cottle, Analyst


Currency Pair: Bearish USD/JPY

Expertise: Fundamental and Techincal

Average Time Frame: Two weeks

DailyFX Quarterly Forecasts for Q3 and are available here

On a fundamental level, there are few reasons to like the Japanese Yen over the US Dollar, if indeed there are any.

US yields have long been far higher than their Japanese rivals’. With the Federal Reserve still committed to raising interest rates while the Bank of Japan’s monetary taps remain wide open, that is not going to change. The US economy continues to perform well by most measures too, suggesting that the Fed will have room to go further while the BoJ remains mired,

Still, USD/JPY has slipped this month, usually thanks to bouts of global risk aversion sustained by trade war worries or jitters around Europe as Brexit talks move toward and endgame and Italy’s budget standoff with the European Union digs in. Technically speaking USD/JPY had already slipped once in October below the daily chart uptrend line that had previously kept bears at bay since March. It’s now trying that line again.

Uptrend Threatened Again. US Dollar vs Japanese Yen, Daily Chart.

Current weakness seems focused on the 112.18 level, which is first, 23.6% Fibonacci retracement of the rise up from those March lows to October’s 2018 peaks. If that point gives way then the pair could be set for yet-further weakness, perhaps at least as far down as the recent lows of 111.37 and perhaps below.

However, it’s probable that these falls will represent a decent buying opportunity for further, medium-term rises, perhaps up to and beyond this year’s peak once the fundamentals take the driving seat again.

It is also notable that the Yen’s strength against the US Dollar has failed to translate into gains against either the Australian or New Zealand currencies, both of which have risen quite sharply against it. It could be wise to play for at least a pause in this process, if not a near-term reversal.

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--- Written by David Cottle, DailyFX Research

Follow David on Twitter @DavidCottleFX or use the Comments section below to get in touch!

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.