The price action on Friday in the USD/JPY cross currency pair was quite remarkable. It found strong support just below the 100-period Simple Moving Average (SMA) on the 4-hour chart. Traders have flown high on this new development catching development monkey among traders. They are especially favored as the duo has rocketed back above the 154.45-154.50 horizontal resistance area. The US dollar (USD) strengthened as the market saw reduced prospects for one more cut in Dec by the US Federal Reserve Board. This reinforced the bullish impetus behind USD/JPY’s rally.
Throughout the last several trading sessions the USD/JPY pair has traded firmly above the 154.00-midpoint. This is its loftiest heights since early February. The direction of progress is definitely up, and it’s picking up speed. Both a drop in bearish outlooks for the USD and an increase in bullish conviction on the currency have contributed mightily to this expansion. The oscillators on both the 4-hour and daily charts remain in positive territory. This is indicative that the pair has yet to run into overbought territory.
A major psychological level for traders sits at 155.00. A close above this level would confirm a positive technical reversal for USD/JPY and potentially inspire even more aggressive buying. Analysts opine that the pair could pick up positive momentum if it trades above this level. That may be enough to push it on to the still-intermediate obstacle of 155.60-155.65.
It’s not just our USD strength that is making life difficult for the JPY. This pullback, coupled with other recent economic data, suggests that Japan’s economy is indeed shrinking. Japan’s economy contracted for the first time in six quarters in the three months to July-September. This unprecedented downturn has raised alarm bells as to the country’s long-term economic prospects. Consequently, the Bank of Japan (BoJ) will soon delay what could have been its first increase in interest rates. This move, if it goes forward, would further undermine the JPY.
As investors have to continue judging these dynamics, the 154.00 figure is an important support line for USD/JPY. Should the GBP/JPY cross keep on bleeding, buyers would be significantly attracted towards the 153.60-153.50 zone. This zone coincides with the 100-period SMA on the 4-hour chart. If we see a convincing break below the 154.00 level then this could bring significant technical selling pressure. Such an unexpected move could drag USD/JPY to the psychological level of 153.00.
If the new FOMC Minutes this Wednesday follows that path, it could further support the USD. They can more generally influence market sentiment regarding the USD/JPY. Market watchers will be parsing these minutes for any clues. They need to know what the Fed’s monetary policy is likely to be, and how those changes might impact currency trading.