USD/JPY could target 100.00 yen on bearish outlook
The US Dollar ended Wednesday’s session at 102.514 versus the yen, down about one tenths of a percent for the day. The pair closed with gains on Friday, rebounding from the session lows by more than 1.5 percent to settle at 102.308 yen, up 0.28 percent for the week.
The Japanese currency has been trading in a tight range this week, oscillating between 102.00- 102.70 yen to the dollar. For the week, the dollar was weaker versus the yen, after rebounding from more than two month lows last week. The pair has slumped close to three and a half percent this year after hitting 64- month highs late last December.
In fundamental data out of Japan this week:
• Housing loans in the fourth quarter were slightly lower at 2.9 percent compared to 3 percent a year earlier
• Current account deficit for December widened by 46 billion yen to 638.6B from 592.8B in November
• Consumer confidence in January stood at 40.5 compared to 41.3 in December, below analysts’ expectations
• December machine orders rose to 6.7 percent, year on year compared to 16.6 percent increase, same time last year. Month on month, the orders were down 15.7 percent. Machine orders evaluate business capital spending
• The tertiary index which assesses the monthly output change in the service sector declined 0.4 percent in December after rising 0.8 percent the previous month
The Week Ahead
• Pair creating lower tops and lower bottoms
• Near term trend bearish
• Medium to long term trend bullish
The daily USD/JPY chart shows that the pair has been making lower tops and lower bottoms, suggesting near term weakness in the U.S. dollar; indicated by the downward sloping channel. Immediate supports are placed at 100.75 yen; previous lows and shown by the horizontal trend line. Close below the supports, the losses could extend to 99.60- 100.00 yen; medium term supports represented by the trend line connecting the lows of June and October last year, where the downside in the dollar is likely to be capped. Immediate resistances could be seen around 102.60 yen; top end of the near term bearish channel.
A close above and we could see a trend reversal with the pair likely to target 106.75- 107.00 yen, in quick time. The medium to long term view remains bullish in favor of the greenback, with the pair likely to target 110.00- 111.00 yen
Look to initiate long dollar trades on declines from 100.75 yen up to 100.00 yen, with stops at around 99.00 yen. Also look to long dollar at the break of 103.00 yen for targets of 106.00- 106.50 yen.
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