USD/JPY: sandwiched below the 50-W SMA and above the 200-D SMA

  • USD/JPY: can't find the legs for a break higher while Geopolitical risks anchor the pair.
  • USD/JPY: bulls eye breakout above yesterday's 110.45 high, spike to 111 handle.

USD/JPY is currently trading at 110.25, sandwiched below the 50-W SMA and above the 200-D SMA. The high has been 110.38 and low 110.03.

USD/JPY can't find any follow through on bullish attempts from the 100-hr at 110.18 SMA (200-D SMA 110.16) while the US 10's yield ticks back a notch or two from daily highs of 3.09%. The key target is a break of yesterday's high, but there too many risks out there and due to the yen's function as a safe haven, rate spreads alone may not be the catalyst for a break out of the 110 handle. 

What geopolitical events are in play?

Iran has taken the top spot of geopolitical events of late whereby, on the May 8th, the US pulled out of the 'nuclear deal, over concerns that it wasn't comprehensive or that it did not target its regional and destabilising activities enough. Something to monitor in months to come - in particular, it will be watching Iran's efforts to salvage the deal as the FM embarks on an international trip to Bejing Moscow and Brussels. On the trade front, NAFTA will be taking the headlines and progress with negotiation with China will also be closely watched. 

Rabobank's outlook

"Despite our broadly USD positive view, we expect that scope for gains in USD/JPY is likely to be limited given the rise in risk aversion. We are forecasting a move to USD/JPY 112 on a 9-12 month view," analysts at Rabobank explained.

USD/JPY levels

110.85 is the key initial target while the price continues to find support above the 200-D SMA at 110.16. A break of yesterday's midway point highs could trigger a spike on buy stops that would indeed bring higher levels into lay, raising the short term range up. A test of the 112.39 2015-2018 downtrend line comes in to play. 

Below the 109.40/50 support, attention will be towards a break below the 108.50 level. This will open risk towards the 50-D SMA before the 2018 low at 104.63 as a key support.

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