USD/JPY fell sharply Tuesday, dropping to a low of 109.28 from a recent high of 114.39 on May 11. But that trend could be about to change.
The strength of the Japanese Yen in Tuesday’s session has been widely attributed to “risk off” sentiment in the markets ahead of the UK General Election on Thursday and the testimony to Congress by former FBI director James Comey the same day, as well as concerns about the dispute between Qatar and other Arab countries over the Gulf state’s alleged support of Iran and Islamist groups.
In addition, the US Dollar is still under pressure from Friday’s news of a much weaker than expected non-farm payrolls number for May, while the Yen has been boosted by news that Japanese cash wages rose by a stronger than expected annual 0.5% in April, the biggest rise in four months.
Yet those worries will likely dissipate. The ruling Conservative Party remains the strong favorite to win the UK election despite a narrowing of its lead in the opinion polls and Comey’s testimony will only be important for the markets if it distracts US President Donald Trump from his economic plans. Qatar is not a major oil producing nation. The chances are, therefore, that USD/JPY will rally.
Chart: USD/JPY Daily Timeframe (2017 to Date)
Technically, the late April gap on the daily chart has been filled by the latest downmove and there is strong support above 108 from the lows registered a few days earlier. By contrast, there is little resistance ahead of the 1.1050-1.1200 trading range in place before the latest fall, and any break above those levels would bring the recent highs around 1.1430 back into play.
--- Written by Martin Essex, Analyst and Editor
To contact Martin, email him at martin.essex@ig.com
Follow Martin on Twitter @MartinSEssex
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