USD/JPY is primed for further losses


USD/JPY continues its prolonged, orderly and slow technical descent as the yen is favored by real interest rates and modest safety-trade. Currency markets are prepared to reward the dollar for an improving global economy. Hopefully, vaccines will end its hold and permit normal economic activity, but that recovery may still be a few months away, FXStreet’s Analyst Joseph Trevisani briefs. 

Key quotes

“Technically, the USD/JPY remains immured in a descending channel that can be stretched back to December 2016, though the much narrower channel from the beginning of July is more relevant for current trading. Support is primarily at 103.30 which marks the bottom on November 6 and the start line for the rally on the 9th. Those were the lowest points since the crash and immediate recovery in March.”

“The accelerating rise in COVID-19 diagnoses in the US, even though there have been similar increases in Europe and to a lesser degree in Japan, has sapped the safety-trade resort to the US dollar. The course of the pandemic in the US and the potential for economic damage has kept the greenback on the general defensive since early in the month. The yen's traditional safe-haven status has added to the dollar's decline.”

“The yen has been favored by the differential in real interest rates, primarily due to the very low inflation in Japan. The yen is strengthened by deflation and the dollar is weakened by inflation to a greater degree than the difference in the base interest rates. Slipping US Treasury yields are also undermining the dollar.”

“Until infection rates decline and the threat to the economy is removed, the dollar and the USD/JPY will be unable to benefit from the historically better US growth.”

“Technically, all indicators point lower. The descending channel is intact and well-defined. Resistance lines beginning at 104.30 are more plentiful and endorsed by far greater price action. The moving averages are all above market levels.”

“Countering the trend lower, or potentially doing so, are two fundamental factors. First, the USD/JPY is approaching the range near 100 yen where the last reversal took place in November and December 2016. The Japanese government will not want to burden any recovery with an expensive yen. Second, the dollar recovery is waiting for the all-clear signal from the US economy.”

 

Share: Feed news

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.

Recommended content


Recommended content

Editors’ Picks

EUR/USD edges lower toward 1.0700 post-US PCE

EUR/USD edges lower toward 1.0700 post-US PCE

EUR/USD stays under modest bearish pressure but manages to hold above 1.0700 in the American session on Friday. The US Dollar (USD) gathers strength against its rivals after the stronger-than-forecast PCE inflation data, not allowing the pair to gain traction.

EUR/USD News

GBP/USD retreats to 1.2500 on renewed USD strength

GBP/USD retreats to 1.2500 on renewed USD strength

GBP/USD lost its traction and turned negative on the day near 1.2500. Following the stronger-than-expected PCE inflation readings from the US, the USD stays resilient and makes it difficult for the pair to gather recovery momentum.

GBP/USD News

Gold struggles to hold above $2,350 following US inflation

Gold struggles to hold above $2,350 following US inflation

Gold turned south and declined toward $2,340, erasing a large portion of its daily gains, as the USD benefited from PCE inflation data. The benchmark 10-year US yield, however, stays in negative territory and helps XAU/USD limit its losses. 

Gold News

Bitcoin Weekly Forecast: BTC’s next breakout could propel it to $80,000 Premium

Bitcoin Weekly Forecast: BTC’s next breakout could propel it to $80,000

Bitcoin’s recent price consolidation could be nearing its end as technical indicators and on-chain metrics suggest a potential upward breakout. However, this move would not be straightforward and could punish impatient investors. 

Read more

Week ahead – Hawkish risk as Fed and NFP on tap, Eurozone data eyed too

Week ahead – Hawkish risk as Fed and NFP on tap, Eurozone data eyed too

Fed meets on Wednesday as US inflation stays elevated. Will Friday’s jobs report bring relief or more angst for the markets? Eurozone flash GDP and CPI numbers in focus for the Euro.

Read more

Forex MAJORS

Cryptocurrencies

Signatures