JAPANESE YEN FORECAST: USD/JPY PRICE ACTION PLUNGES LOWER AS AUD/JPY, CAD/JPY EXTEND RALLY
- Japanese Yen has weakened broadly with the exception of its US Dollar peer
- USD/JPY price action looks primed to continue facing downward pressure
- AUD/JPY has advanced to fresh yearly highs and CAD/JPY could catch up
JPY price action has largely traded on its back foot for the last few months. Weakness across the Japanese Yen has broadly stemmed from its posturing as a top safe-haven currency. Demand for safe-haven currencies like the Yen has dissipated with market sentiment and trader risk appetite flourishing. The Yen has strengthened considerably against its US Dollar peer, however, as spot USD/JPY edges toward its lowest monthly close since October 2016.
USD/JPY PRICE CHART: DAILY TIME FRAME (26 JUN TO 30 DEC 2020)
USD/JPY price action could continue to face selling pressure headed into the new year as US Dollar bears strongarm the major currency pair lower. The Dollar-Yen might look toward the 102.50-price level, which is underpinned by the March swing lows, as a potential area of technical support. The bottom Bollinger Band and month-to-date lows around the 103.00-handle seems to have provided a bit of buoyancy so far, but the negatively-sloped 20-day simple moving average looks to be a more dominant headwind. A bearish crossover on the MACD indicator also suggests that downward momentum is accelerating.
| Change in | Longs | Shorts | OI |
| Daily | -12% | 0% | -3% |
| Weekly | -17% | 5% | -1% |
AUD/JPY PRICE CHART: DAILY TIME FRAME (04 SEP TO 30 DEC 2020)
AUD/JPY price action has advanced steadily since the early November swing low. The Aussie-Yen trades over 600-pips higher since then and is on pace to close 2020 at a year-to-date high. Although the relative strength index suggests AUD/JPY has entered ‘overbought’ territory, the bullish trend appears firmly intact. If volatility continues to bleed lower and sentiment stays upbeat, spot AUD/JPY could extend toward the 80.500-price level underscored by the April 2019 swing high. On the other hand, a return of risk aversion, which would likely correspond with a pullback across major stock indices, the Japanese Yen could catch a safe-haven bid and steer AUD/JPY lower. This scenario could bring the 50-day simple moving average into focus as a potential area of technical support.
| Change in | Longs | Shorts | OI |
| Daily | -23% | -7% | -13% |
| Weekly | -38% | 9% | -14% |
CAD/JPY PRICE CHART: WEEKLY TIME FRAME (AUG 2018 30 DEC 2020)
CAD/JPY price action has also gained ground largely owing to the theme of strength across commodity currencies and weakness across safe-havens. This ‘reflation trade’ looks likely to continue into the new year with stimulus and vaccine developments keeping markets optimistic. CAD/JPY has faced technical resistance around the 82.000-handle, but an ascending triangle pattern looks to have formed from a series of higher lows since March. As upward pressure builds, a breakout above this level could motivate bulls to propel CAD/JPY toward the 84.500-price level near 2019 and year-to-date highs. The direction of crude oil prices might serve as a potential bellwether as to where CAD/JPY heads next considering the strong positive correlation between the Canadian Dollar and crude oil.
-- Written by Rich Dvorak, Analyst for DailyFX.com
Connect with @RichDvorakFX on Twitter for real-time market insight
