JPY rallies in the FX market

Peter Iosif, ACA, MBA IronFX

In maybe the most impressive move in the markets yesterday JPY rallied, taking the markets by surprise once again. Despite some analysts highlighting the expected rate hike by BoJ next week as the fundamental reason behind JPY’s rally, we see the movement as being too abrupt and suspect that a market intervention operation took place. The move becomes even more impressive as Japan’s FX reserves in August, hit a 4-year low point, underscoring the decisiveness of Japan to defend its currency. In any case, the strengthening of JPY has shaken the traders of carry trade shorting the Yen, which may lead to further support for JPY.

US equities remain mixed

US equities remained relatively mixed with low volatility, given the slight drop of Dow Jones and S&P 500 and slight upward movement of Nasdaq. As US stock markets are reopening after the US Labour Day, we still see the rise of oil prices as weighing on US equities and the emergence of a risk-off market sentiment may weigh on US stock market indexes.

Oil prices continue to rise

Oil prices continued to rise as Iran and the US continued to exchange salvos on vessels passing through the Straits of Hormuz. The conflict became even more intense as Houthis were reported to have struck oil facilities in Saudi Arabia. Should we see market worries for the supply side of the oil market, we may see oil prices aiming further. Yet we note that the width of the movement of oil prices remains relatively contained, implying that the oil market has allready partially been expecting the developments, and alternative oil sources tend to ease market worries.

Gold’s price remains stable

Gold’s price remained relatively stable yesterday and during today’s Asian session. The negative correlation between the USD and gold’s price was somewhat blurred yesterday and we continue to highlight the release of the US CPI rates for August on Friday as the next big test for gold’s price and continue to note the Fed’s intentions as the main driver of gold’s price.

Other highlights for today

Today we get Germany’s and France’s trade data as well as France current account balance, all for July. In tomorrow’s Asian session, we get China’s inflation metrics for August, while RBNZ’s Silk speaks

Charts to keep an eye out

USD/JPY tumbled yesterday and during today’s Asian session, breaking the 155.00 (R1) support line, now turned to resistance. The RSI indicator has dropped below the reading of 30, highlighting the strong bearish market sentiment for the pair, yet at the same time also implies that the pair is at oversold levels and possibly ripe for a correction higher. Should the bears remain in control over USD/JPY, we may see the pair breaking the 152.10 (S1) support line and start aiming for the 149.40 (S2) support level. Should the bulls take over which we consider currently as a remote scenario, we may see USD/JPY breaking the 155.00 (R1) resistance line, continue to break also the 157.50 (R2) resistance level and start aiming for the 160.50 (R2) barrier.

XAU/USD remained relatively stable, well within the boundaries set by the 4550 (R1) resistance line and the 4275 (S1) support level. The RSI indicator runs along the reading of 50, implying a rather neutral stance on behalf of market participants for gold’s price. For a bullish outlook to emerge, we require a clear break above the 4550 (R1) resistance line and gold’s price to start aiming for the 4890 (R2) resistance level. For a bearish outlook to emerge, gold’s price would have to break clearly the 4275 (S1) support line and start aiming for the 3960 (S2) support level.

USD/JPY daily chart

Support: 152.10 (S1), 149.40 (S2), 146.50 (S3).
Resistance: 155.00 (R1), 157.50 (R2), 160.50 (R3).

XAU/USD daily chart

Support: 4275 (S1), 3960 (S2), 3600 (S3).
Resistance: 4550 (R1), 4890 (R2), 5245 (R3).

Author

Peter Iosif, ACA, MBA

IronFX

Mr. Iosif joined IronFX in 2017 as part of the sales force. His high level of competence and expertise enabled him to climb up the company ladder quickly and move to the IronFX Strategy team as a Research Analyst. Mr.

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