For the second day in a row, the Japanese Yen (JPY) has fallen. This drop follows after Japan’s Household Spending data came in under expectations. In fact, on Friday, financial markets gave a thumbs-up to the news. The USD/JPY currency pair started to swing in a predictable range. While this movement may not seem important, it has established a rectangle pattern on our daily chart. This technical pattern suggests an area of fever pitch, which when broken will lead to accelerating downside.
Market analysts have their eyes glued. If the USD/JPY pair closes below this well-established rectangle, watch for possible downside to follow. This aggressive step will now be expected to drive spot prices further down toward the next near-term support level at 141.60. This corresponds with the 100-period Simple Moving Average (SMA) on the 4-hour chart. Should the USD/JPY pair recover the psychological level of 145.00, it will face first resistance from the 100-period SMA. Only then can it get its groove back.
Earlier in the day during the Asian trading session, the USD/JPY pair stayed elevated well over the mid-143.00s. This stability was made possible by good news from US-China trade talks expected resumed talks. This optimism reduces the demand for the safe-haven JPY, which is positive for the pair. The currency has been under constant pressure, both externally from a broad market downtrend since the May monthly swing low and internally.
Given the current market conditions, new sellers will almost certainly be lured in closer to the key psychological level at 144.00. Market oscillators are still sending modestly negative signals on the daily chart. Futures market inversion suggests the overall path of least resistance for USD/JPY spot prices is lower. With the recent Yen weakness, selling Yen has emerged.
Things are about to get very bad. The USD/JPY might fall under the 142.75-142.70 area, accelerating its descent towards the 142.10 figure, equaling last week’s swing low. According to analysts, a breach of the 143.50-143.45 zone would present attractive buying opportunities for USD/JPY. Traders will look for a tactical entry near the 143.00 round number and find opportunities to ride the meaningful rebounds.
The fall of the Yen is a clear byproduct of market sentiment and illustrates the role domestic economic indicators can play in currency valuations. As Japan’s economy faces challenges, including weaker consumer spending, investors remain cautious about the Yen’s future performance.