USD/JPY destined towards 111.20 if respecting mean reversion theory of 26th Feb swing lows

  • On a risk-off session overnight, USD/JPY was falling from 111.90 to 111.62 printing a fresh low for the month.
  • Technically, the pair is moving lower from the ascending channel's resistance, likely destined to the base of the channel at 111.20 if price action will respect the theory of channel and Bolinger Bank reversion.
  • USD/JPY is currently trading at 111.62, within a 111.60/87 range. 

The pair was steadying only a touch lower overnight while highly disappointing US trade data capped the greenback's recent advance to the 97 handle in the DXY. A record trade deficit for 2018 widened to -$59.8bn while the US trade gap blew out to $-621bn in 2018, by 12.5% and making for ten-year high - (Exports dropped 1.9% for a third consecutive month while domestic demand took imports up by 2.1%).

However, the ADP report came with a good-sized upward revision - a positive prelude t this week's nonfarm payrolls event. The headline came in a touch below expectations at 183k vs the mkt consensus of 190k. The January print was revised up 87k to 300k the overall read was solid. As for US yields, the US 10yr treasury yield dropped from 2.72% to 2.68% while the 2yr yield fell from 2.55% to 2.51%.  The futures markets continued to price little chance of any further Fed rate hikes in this cycle.

USD/JPY levels

The pair is in a rising channel and bulls targeting 112.20 and above will look for demand at the base of the daily Bollinger Band around 111.20 (mean reversion of 26th Feb swing lows) if there are no breakups above 111.50.

Valeria Bednarik, Chief Analyst at FXStreet explained that the pair has been confined to a tight 50 pips range ever since the week started, and may correct lower before finally being able to break higher:

"The key will be the 111.00 level, as, if it breaks below it the risk will be then toward the downside. For the short-term and according to the 4 hours chart, the pair offers a neutral stance, still trading above bullish moving averages, and with technical indicators lacking directional strength around their mid-lines."

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