USD/JPY turning gears at 109.00 handle as US yields weigh on stocks

Investors buy Japanese yen as stocks are trading down on Tuesday.
The US dollar is starting to weaken as the long trade initiated last week is seeing profit-taking.

Flavio Tosti Independent Analyst

The USD/JPY is trading at around 108.78 virtually unchanged on Tuesday as the European forex session came to a close.

The USD/JPY traded as high as 109.17 in the European session in what is a six-day advance. But the USD/JPY saw some profit-taking as it broke above the 109.00 handle and the 100-period simple moving average in the daily chart as the US dollar benefitted from a strong buying wave in the last five days.

US stocks are trading sharply down as US treasury yields reach 4-year highs and started worrying stocks´ investors. Adding pressure to equities is the disappointment with the earnings season. The Japanese yen is bought as a safe-haven currency in times of uncertainties and market pullbacks.

Recently underpinning the greenback was the surge in Treasury yields and especially the 10-year benchmark which traded as high as 3.003% on Tuesday. However, the US Dollar Index (DXY) is not following the move up and instead is trading down on the day as it was unable to break above the 91.00 psychological level. Some analysts at ING talk about a USD short-squeeze meaning that they do not see the move higher as the start of a bull trend but rather an opportunity to get short DXY.

Key macroeconomic data is awaiting down the week in the US with the Personal Consumption Expenditure (PCE) price index which is the preferred inflation indicator of the Federal Reserve Bank. The inflation numbers are scheduled on Friday much like the US Gross Domestic Product (GDP). The first quarter US GDP is expected to rise to 2.3% on a quarterly annualized basis.

Earlier in Asia, macroeconomic data saw the Japanese final versions of the Coincident and Leading Economic Indexes for February, revised to 106.0, on the other the Coincident Index for February, which is a reflection of the current economic activity, came below market's expectations at 116.1 against 117.5 forecast.

USD/JPY technical outlook:

Slobodan Drvenica analysts at Windsor Brokers writes:

“The pair cracked 109 barrier on fresh extension higher at the beginning of US session on Tuesday, but so far without clear breakthrough round-figure barrier, reinforced by descending 100SMA. Strong bullish sentiment remains in play for extension through 109 and test of daily cloud top at 109.31, break of which would generate a fresh bullish signal for further retracement of 113.75/104.63 fall and attack at psychological 110.00 barrier. Despite the strong bullish environment, the risk of a stall of strong bullish acceleration in past few sessions exists as strongly overbought slow stochastic warns of consolidative/corrective action ahead, likely before probes through cloud top. Strong supports lay at 108.25 (broken Fibo barrier) and 107.90 (former high of 21 Feb/rising daily Tenkan-sen) and should hold extended corrective dips to keep bulls intact.”

Res: 109.10; 109.31; 109.78; 110.00
Sup: 108.66; 108.49; 108.25; 107.90

Author

Flavio Tosti

Independent Analyst

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