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USD/JPY Forecast: Bears to make a comeback if S&P 500 finds acceptance below 200-day MA

  • Bears are done for now as much of the bad news has been priced-in.
  • The selling would resume if the S&P 500 finds acceptance below the 200-day MA. 

The USD/JPY pair jumped to a two-week high of 107.01 yesterday, reportedly due to the unwinding of the shorts ahead of the quarter end, sustained rise in the USD borrowing costs (Libor-OIS spread) and an upward revision of the Q4 US GDP.

There is more to it than meets the eye:

The pair dropped from 113.39 to 105.32 in the first quarter tracking the rising yields-led risk aversion, fears of trade war and tensions in the Korean peninsula. So, much of the bad news has been priced-in.

Further, the US-China backdoor talks indicate the trade wars will likely be less damaging than previously thought. Meanwhile, Trump's decision to single out China seems to have yielded the desired result... have brought North Korea to the negotiating table.

So, as of now, there is little reason to buy the Japanese Yen. Also, the focus may shift to rate differential markets never got a chance to price in the Fed's upward revision of the neutral rate, courtesy of fears of trade wars.

Hence, the recovery from the low of 104.63 to 107.00 looks sustainable. A convincing move above 106.64 seen yesterday, signaled an end of the lower highs pattern and has opened the doors for a rally to 107.91 (Feb. 21 high).

Daily chart

The 5,10, and 21 MAs are in the process of bottoming out (shedding bearish bias), while the upside is being capped by the descending 50-day MA So, the pair could consolidate in 106.00-107.00 range before moving higher towards 107.90-108.00.

However,  holding on to gains above 107.00 (and extending the rally towards 109.00) will be a tough task as long as the 10-week MA is trending southwards.

Furthermore, the bears will likely make a comeback, pushing the pair back below 105.00 if the S&P 500 closes below the 200-day moving average support of $2,588. The index closed at $2,605 on Friday.

Author

Omkar Godbole

Omkar Godbole

FXStreet Contributor

Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.

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