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US Dollar Prices May Reverse Higher as Japanese Yen Trims Gains

US Dollar Prices May Reverse Higher as Japanese Yen Trims Gains

Daniel Dubrovsky, Strategist

Asia Pacific Market Open Talking Points

  • US Dollar may be readying to turn higher
  • Illiquid trading conditions persisting ahead
  • Japanese Yen may unwind recent strength
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US Dollar Gains Vs Euro and British Pound

The US Dollar aimed cautiously higher against its major counterparts on Thursday. Markets are slowly coming online in the aftermath of year-end holiday liquidity drain. Some choppiness is still to be expected. Generally speaking, USD’s rise occurred despite gains in equities.

The haven-linked Greenback does boast one of the highest yields of the major currencies. That may have worked to its advantage in thinner trading conditions where a premium is placed on liquidity. Gains were the most prominent across the Atlantic Ocean where the Euro and British Pound underperformed.

Despite the 0.84% climb in the S&P 500, the anti-risk Japanese Yen puzzlingly outperformed. It should be noted that most of its rise occurred in the lead-up and immediate aftermath of Wall Street open. During this time, equities saw a cautious pullback before rallying into the close absent key event risk.

Some optimismahead of the expected US-China “phase-one” trade deal signing may have attributed the cautious “risk-on” tone. That is anticipated to occur on January 15. Newswires also cited the People’s Bank of China announcement to trim the reserve requirement ratio (RRR) by 50-basis points from January 6.

Friday’s Asia Pacific Trading Session

Friday’s Asia Pacific trading session is lacking notable event risk, placing the focus for foreign exchange markets on market mood. Japan is offline for a market holiday, exacerbating illiquid trading conditions. S&P 500 futures are pointing cautiously higher which may translate into the Yen trimming some of its gains.

US Dollar Technical Analysis

Using my majors-based index, the US Dollar had its best day in over two weeks. This left behind a Morning Star using the daily chart below. This is a bullish candlestick pattern. We also have the presence of positive RSI divergence which shows fading downside momentum. With a confirmatory upside close, this could be another bottom for USD on the whole.

Majors-Based USD Index

Majors-Based USD Index

Chart Created Using TradingView

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--- Written by Daniel Dubrovsky, Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter

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

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