USD/JPY: at monthly lows and bearish

USD/JPY Current price: 112.25

  • Equities and yields falling drive the Japanese yen higher.
  • A return of trade war concerns also backed the safe-haven currency.

The USD/JPY pair plunged to 111.96, its lowest since mid-September, as not only equities collapsed but also US Treasury yields are sharply down from the multi-year highs reached earlier this week. The run to safety that triggered Wall Street losses was a revival of trade tensions between the US and China, and soaring government bond yields. Equities' sell-off continued in Asia and is extending in Europe, as US President Trump criticized once again the Federal Reserve tightening policy, which resulted in US Treasury yields retreating sharply from their highs.

European indexes gapped lower and while still trading in the red, have managed to bounce from their early lows, helping the USD/JPY pair to recover some ground. Still, it's trading around 112.25, well below the 114.54 peak reached this month. Japan released the September Domestic Corporate Goods Price Index, up by 0.3% MoM and by 3.0% YoY, both slightly above expected. Despite signaling encouraging inflation growth, it's still far from creating inflationary pressures that can take the BOJ away from its lethargic on-hold stance on monetary policy.

The US will release today its usual weekly unemployment figures, and more relevant, September inflation figures. Seems unlikely the release could deviate the US Federal Reserve from the current tightening path, and therefore the effect on currencies could be short-lived, with Trump´s comments and trade war concerns weighing more. Still, US CPI is seen up 0.2% MoM and 2.4% YoY, while the core readings are foreseen advancing 0.2% and 2.3% respectively.

The 4 hours chart for the pair shows that it has broken below the 100 and 200 SMA, with the latest offering an immediate resistance in the 112.30 region, as the pair has been unable to advance beyond it since the day started. Technical indicators in the mentioned chart have corrected from extreme oversold levels but quickly resumed their declines, still developing in oversold territory, maintaining the risk skewed to the downside. A break below 111.90 should favor additional declines toward the 111.20 region, while the downward pressure could ease on a recovery above 112.60.

Support levels: 111.90 111.55 111.20

Resistance levels: 112.35 112.60 113.00

View Live Chart for the USD/JPY


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