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USD/JPY Eyes Topside Targets Ahead of Trump & Abe Meeting

USD/JPY Eyes Topside Targets Ahead of Trump & Abe Meeting

David Song, Strategist

Talking Points:

- EUR/USD on Brink of Further Losses as Greek Saga Continues; Draghi Sticks to Dovish Script.

- USD/JPY Clears Near-Term Range, Eyes Topside Targets Ahead of Trump & Abe Meeting.

DailyFX Table
CurrencyLastHighLowDaily Change (pip)Daily Range (pip)
EUR/USD1.06681.07101.06563054

EUR/USD Daily

EUR/USD Daily Chart

Chart - Created Using Trading View

  • The failed attempt to test the December high (1.0873) keeps the near-term outlook for EUR/USD tilted to the downside, with the pair at risk of extending the recent series of lower-highs especially as the Greece-debt saga continues to undermine the stability of the monetary union; will be keeping a close eye on the RSI as it threatens trendline support and appears to be highlighting a bearish trigger, with the oscillator largely responding to the downward trend carried over from 2015.
  • Renewed concerns surrounding the periphery countries may spur a growing rift within the European Union (EU) especially as German Finance Minister Wolfgang Schedule rules out a Greek debt-cut and warns the Euro exchange rate is ‘too low’ for the region, but the European Central Bank (ECB) may keep the door open to further extend its quantitative-easing (QE) program as President Mario Draghi pledges to preserve an accommodative policy stance until his tenure expires in 2019.
  • In turn, a bearish RSI trigger accompanied by a break/close below the Fibonacci overlap around 1.0660 (50% expansion) to 1.0680 (78.6% expansion) may open up the next downside region of interest around 1.0600 (23.6% expansion) followed by 1.0470 (38.2% expansion) to 1.0500 (50% expansion).
CurrencyLastHighLowDaily Change (pip)Daily Range (pip)
USD/JPY112.98113.19111.74105145

USD/JPY Daily

USD/JPY Daily Chart

Chart - Created Using Trading View

  • With U.S. President Donald Trump and Japan Prime Minister Shinzo Abe schedule to meet on Friday, headlines emanating from the private talks may shake up the near-term outlook for USD/JPY, but the pair looks poised for a larger recovery as it breaks out of the narrow range from earlier this week; the Relative Strength Index (RSI) highlights a similar dynamic as it threatens the bearish formation carried over from late-December, and the turn in the oscillator accompanied by the pickup in the global benchmark equity indices shifts the near-term focus back towards the topside as the dollar-yen appears to be coming off of channel support.
  • Indeed, the broader outlook for USD/JPY remains confined by the descending channel from December, with the pair at risk of facing range-bound conditions ahead of the Fed’s next quarterly meeting in March especially as Chair Janet Yellen and Co. appear to be in no rush to further normalize monetary policy; in turn, risk sentiment may continue to influence the dollar-yen exchange rate throughout the first quarter as the Bank of Japan (BoJ) takes a similar stance and endorses a wait-and-see approach for monetary policy.
  • Nevertheless, the three-month old formation may appear more like a long-term bull-flag formation as the Fed appears to be on course to implement additional higher borrowing-costs over the coming months, with Fed Fund Futures still pricing a greater than 60% probability for a June rate-hike.
  • A closing price above 112.90 (38.2% retracement) may open up the next topside area of interest around 114.00 (23.6% retracement) to 114.30 (23.6% retracement) followed by 116.00 (78.6% expansion) to 116.30 (23.6% retracement).

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--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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

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