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  • Key break here in the 10-year #Treasury yield as it rises to the highest since late June Took out 1.4230 resistance, and the 100-day SMA Eyes now on the 38.2% Fib extension at 1.4775 Also potential falling resistance from March https://t.co/4cI6l210ui
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  • USD/JPY trades to a fresh monthly (110.57) amid the pickup in longer-dated US Treasury yields, and the exchange rate may stage a larger advance over the coming days. Get your market update from @DavidJSong here:https://t.co/dlNXOrJnM9 https://t.co/LCQd26W1zF
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USD/JPY Snaps Bearish Sequence as U.S. Extends Debt-Limit

USD/JPY Snaps Bearish Sequence as U.S. Extends Debt-Limit

David Song, Strategist

Talking Points:

- Nikkei (JPN225) Eyes Monthly Open Rage as U.N. Votes on Relaxed North Korea Sanction.

- USD/JPY Bounces Back From 2017-Low as U.S. Extends Debt-Limit.

- Sign Up for the DailyFX Trading Webinarsfor an opportunity to discuss potential trade setups.

DailyFX Table

Ticker

Last

High

Low

Daily Change

Daily Range

JPN225

19624

19646

19404

200

242

The Nikkei (JPN225) appears to on course to test the monthly opening range as the United Nations Security Council looks to de-escalate tensions with North Korea.

The rebound in global benchmark equity indices may gather pace over the coming days as the U.N. votes to relax the U.S.-proposed sanctions against the Democratic People’s Republic of Korea (DPRK), but the pickup in risk appetite may be short-lived as Fitch Ratings warns the conflict surrounding the Korean peninsula may ultimately impact trade relations between the U.S. and China. In turn, ongoing tensions in Asia/Pacific may continue to sap trader sentiment, with the broader outlook for JPN225 becoming increasingly bearish as is fails to preserve the upward trend carried over from 2016.

JPN225 Daily Chart

JPN225 Daily Chart

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  • JPN225 looks poised to test the monthly-high (19,741) following the string of failed attempts to close below the 19,280 (23.6% retracement) hurdle, with the next topside hurdle coming in around 19,820 (23.6% retracement) followed by the former support-zone around 19,950 (38.2% expansion).
  • Keeping a close eye on the Relative Strength Index RSI) as it comes up against trendline resistance and threatens the bearish formation carried over from May; may see JPN225 continue to retrace the decline from earlier this year should the momentum indicator highlight a shift in market behavior.

Ticker

Last

High

Low

Daily Change (pip)

Daily Range (pip)

USD/JPY

108.88

108.93

108.09

78

84

USD/JPY snaps back from the 2017-low (107.32), with the rebound accompanied by a pickup in Treasury yieldsas U.S. lawmakers extend the debt limit and approve a $15B hurricane relief program.

The expansion in public spending may keep the Federal Open Market Committee (FOMC) on course to further normalize monetary policy as the central bank ‘expects to begin implementing its balance sheet normalization program relatively soon,’ and the dollar-yen exchange rate may stage a relief rally ahead of the interest rate decision on September 20 as it snaps the bearish sequence from earlier this month.

However, the fresh projections from Chair Janet Yellen and Co. may dampen the appeal of the greenback as Fed officials adopt a less-hawkish tone, with In turn, the majority of the FOMC may continue to warn ‘inflation might remain below 2 percent for longer than they currently expected,’ and the committee may endorse a wait-and-see approach for the remainder of the year as ‘several indicated that the risks to the inflation outlook could be tilted to the downside.’

USD/JPY Daily Chart

USD/JPY Daily Chart

Chart - Created Using Trading View

  • USD/JPY snaps the series of lower highs & lows ahead of the Fibonacci overlap around 106.60 (38.2% retracement) to 107.20 (61.8% retracement), with the pair at risk for a larger rebound especially as the Relative Strength Index (RSI) deviates with price.
  • Despite the fresh 2017-low in the exchange rate, the RSI continues to hold above 30, with the near-term bias tilted to the topside as the oscillator turns around ahead of oversold territory.
  • A close above the 108.30 (61.8% retracement) to 108.40 (100% expansion) zone may spur a move back towards the overlap around 109.40 (50% retracement) to 109.90 (78.6% expansion), with next topside hurdle coming in around 111.10 (61.8% expansion) to 111.60 (38.2% 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.

To be added to David's e-mail distribution list, please follow this link.

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

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