USD/JPY: Next corrective ‘target’ is the 38.2% retracement at 109.06

Japanese yen near six-week highs on global growth fears and moved for its biggest gain since January as safe-haven buying propelled the currency.
USD/JPY is currently trading at 110 the figure, trading between a range of 110.24 and 109.70.

USD/JPY was grounded below the 110 handle at 109.70 overnight on broad declines in global bond yields and stocks with the curve flattening which all suggests that the market has become more concerned about weak global economic growth. If this is a trend that will continue, you will expect the yen to be underpinned, especially if commodity price continue to correct, wearing down the upward momentum that they have made into 2019.

"US real yields have fallen more than nominal yields this year, with a partial recovery in inflation expectations from their fall in Q4 last year. Lower real yields point to weaker fundamental support for the USD, and further support safe havens like gold,"

analysts at AmpGFX argued.

Looking ahead

Fed speakers will be closely eyed this week, but so too will data:

"We expect core inflation to maintain its recent 0.2% m/m pace in January, keeping the annual rate slightly below 2% for a fourth straight month. Conversely, spending should have bounced back from December's large 0.5% contraction. We pencil in a 0.4% jump but see scope for a smaller increase. Our forecast would leave spending tracking a soft 0.5% q/q increase for Q1."

USD/JPY levels

Analysts at Commerzbank explained that USD/JPY has eroded the 55-day ma and the 2-month uptrend at 110.25/33:

"The sell off looks to be corrective but so far is in complete. The next corrective ‘target’ is the 38.2% retracement at 109.06 and there is scope for the 50% retracement at 108.11. The base of the cloud lies at 108.90. Immediate resistance is 111.45 200 day ma, the 112.13 March high and 112.23, the 6 th December low, the 112.43 55 quarter moving average and recent high at 113.71. We have a 5 month resistance line also at 113.01."

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