USD/JPY extending bullish correction to test bearish commitments at 110.00


  • USD/JPY bulls in play and take on the hourly resistance with eye son the daily resistance.
  • The US dollar is finding support on a number of counts. 

At the time of writing, USD/JPY is trading near the highs of the day and up 0.11% so far.

USD/JPY has rallied from a low of 109.78 to a high of 109.97 completing a 61.8% Fibonacci retracement from the lows and setting the pair up in good stead for firmer grounds.

Markets firmed overnight on comments from Fed Reserve Chair Jerome Powell that showed he was not concerned with the current level of inflation, indicating monetary policy will remain supportive.

Consequently,  equity markets bounced back into positive territory the comments also drove up Treasury yields, supporting an already buoyant US dollar that rose against most G10 currencies over the day.

Wall Street's main indexes all rose by more than 1.5%, with the Dow ahead of the others. Yields on US 10-year Treasuries came off a new five-month low.

The closely watched 2-year government bond yields closed flat at 0.20%, and 10-year bond yields rose from 1.17% to 1.22%.

This helped to send USD/JPY higher by 0.4% to 109.85, (the 61.8% Fibo) aided by the rebound in US yields. 

A measure of its value against six major currencies rose to 93.17 DXY, a three-month high.

Data showing US housing starts rose 6.3% to a seasonally adjusted annual rate of 1.643 million units last month had little reaction from the FX market.

US dollar smile theory in play

Meanwhile, the US dollar smile theory has gained traction of late. 

That is to say, the dollar is benefitting from risk-off flows pertaining to the delta variant spread as well as strong US data. 

The data are feeding into increased dollar bullishness as the Fed continues to take tentative steps towards tapering.

As for the covid fears, further studies are showing that the one sot vaccines may not be enough to combat the delta variant which could underpin both the yen, on the crosses, and US dollar. 

Risk-off: bioRxiv study shows J&J vaccine may be less effective against Delta covid variant

USD/JPY technical analysis

As per the prior session's analysis, it was warned that the bears were pressing against not only weekly support but were likely hamstrung by the bullish market structure, as follows:

...the correction has been very sharp and with little in the way of deceleration on the way to the 38.2% Fibo. 

This rings alarm bells. 

Not only that, the M-formation is a bullish formation that would be expected to attract bids into the neckline of the pattern and prior daily lows in the 109.70/80 area. 

Therefore, a deeper correction to the 50% mean reversion or even the 61.8% Fibonacci could be on the cards for the meanwhile, nullifying the hourly bearish prospects:

Moreover, selling at weekly support is not the most favourable prospect:

Live analysis, daily chart

As illustrated, the price is now creating a new support structure and met the 61.8% Fibonacci retracement.

This raises prospects of an upside continuation considering it breached the M0formarons neckline resistance at 109.70. 

From an hourly perspective, the price has just breached the hourly resistance which is also laying the foundations for an onward trajectory for the day ahead:

 

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Feed news

Latest Forex News


Latest Forex News

Editors’ Picks

EUR/USD: Portrays bearish set-up on D1 below 1.1900

EUR/USD edges lower around 1.1870 amid a quiet start to the week’s Asian session trading on Monday. The major currency pair snapped a four-day uptrend on Friday, posting the bearish spinning top candlestick.

EUR/USD News

GBP/USD: The fundamental background backs another leg higher

The GBP/USD pair settled at 1.3900, its best weekly close since early May. The pair eased on Friday as month-end flows helped the greenback to recover some of the ground lost post-Fed’s dovish statement. Cable could fall once below 1.3865, buyers could surge on approaches to 1.3800.

GBP/USD News

Gold bulls hesitate as focus shift to NFP

After closing the previous week in the negative territory, gold stayed on the back foot on Monday and dropped below $1,800. However, the subdued market action ahead of key macroeconomic events allowed the precious metal to stay in a consolidation phase on Tuesday.

Gold News

Shiba gets listed on eToro as demand for SHIB skyrockets

Leading investment platform eToro has been adding cryptocurrency assets on popular demand from users. The Dogecoin killer recently amassed 600,000 holders despite range-bound price action. 

Read more

Challenging week ahead

Three macro considerations are shaping the investment climate: the evolution of the virus and the response, the timeframe of the Fed's tapering, and China's broad regulatory crackdown. Beijing's new policy initiatives are broader and quicker than generally anticipated.

Read more

Forex MAJORS

Cryptocurrencies

Signatures