USD/JPY: Will the recovery continue?

It’s been a rather subdued start to this week’s trade, with most major global markets closed for Easter Monday.

That said, we have seen the USD/JPY continue to rally, carrying over the some of the strength from last week. The catalyst for the yen weakness was a weaker-than-expected trade balance report from Japan, which showed a ¥1.45T deficit, larger than the ¥1.07T expected. Some of this increase was attributed to the April 1 sales tax hike in Japan, which contributed to an 18% surge in imports last month, but the sluggish growth in exports (only 1.8% y/y) is a particularly worrying sign for The Island Nation.

The other major fundamental driver of the USD/JPY has been US treasury yields. After dropping down to support near the 6-month lows at 2.60% early last week, yields spiked back up toward 2.75% by the close of the week. If rates manage to break above resistance at the 2.80% level this week, the USD/JPY could extend its recent gains and recover back toward the early April high above 104.00.

Looking to the chart, the USD/JPY remains within a short-term uptrend after bottoming near key support in the lower-101.00s two weeks ago. Though it’s difficult to fit a clean trend line to price itself, the RSI indicator has formed a clear channel over the last two weeks. Of course, the RSI indicator is bounded, so its uptrend cannot continue forever, but a break back into overbought territory (above 70) would suggest that rates may have further to run this week.

To the topside, bulls will be looking to target the near-term Fibonacci retracements at 102.72 (50%), 103.05 (61.8%), or even 103.52 (78.6%) next. On the other hand, a short-term drop below Friday’s low at 102.35 would shift the near-term bias back to neutral.
 

 

 

Key Economic Data / Events that May Impact USD/JPY This Week (all times GMT):

  • Tuesday: US Existing Home Sales (14:00)
  • Wednesday: US Markit Flash Manufacturing PMI (13:45), US New Home Sales (14:00)
  • Thursday: US Durable Goods Orders and Initial Unemployment Claims (12:30), JP National Core CPI (23:30)
  • Friday: JP All Industries Activity (4:30), US Markit Flash Services PMI (13:45)
About the Author
Matt Weller

Senior Technical Analyst for FOREX.com.  Matt has actively traded various financial instruments including stocks, options, and forex since 2005. Each day, Matt creates research reports focusing on technical analysis of the forex, equity, and commodity markets. In his research, Matt utilizes candlestick patterns, common indicators, and Fibonacci analysis to predict market moves. You can reach Matt directly via email (mweller@gaincapital.com) or on twitter (@MWellerFX).

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