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USD/JPY: Pausing for Breath in Run Higher, Could Test 114

Exchange rates

Image © kasto, Adobe Stock

- USD/JPY moving sideways short-term as market pauses

- Bulls likely to rally again soon

- Pair could hit 114 if payrolls exceptionally good

After rallying during January and February, Dollar-Yen has stalled and spent the last few days flatlining, moving sideways in a narrow range between 111.60-80.

The 2019 advance now stands at 1.28%, and far from marking the end of the rally, the recent sideways tone is probably more likely a pause for breath in the run higher according to Richard Perry, a market analyst at Hantec Markets.

“The small bodies of the candles in recent sessions points towards a market uncertain of the next move,” says Perry. “This is turning into another consolidation. There is little to suggest this is anything more than a pause for breath in the run higher, however the bulls will be interested to hang on to the breakout above the medium-term pivot at 111.35.”

USD JPY Hamtec Marlets

Momentum indicators are supporting a more bullish forecast too.

“There is continued strength in the outlook on momentum indicators, with the RSI ticking slightly back into the mid-60s, Stochastics still strong and MACD lines positively configured,” says Perry.

The ideal place to rejoin the uptrend – or ‘buyzone’ - is likely to be in the 111.00-35 area.

Resistance, meanwhile, is likely to kick in at 112.25 (we see it marginally higher in the 111.30s).

Our own analysis of the charts broadly agrees with Perry’s bullish slant. We too see the sideways consolidation as probably just a pause in the uptrend.

In fact, it looks very much like a bull flag continuation pattern with a substantial upside target at 114.000.

USDJPY daily chart

Bull flags are made up of a steep rally – the ‘pole’ – followed by a sideways consolidation – the ‘flag’. They are expected to break higher and move an equal distance as the pole measured again.

USD to JPY weekly

The main obstruction to an extension of the uptrend is the strong resistance in the 111.30s from both the 200-week moving average (MA) and the R1 monthly pivot.

The exchange rate would have to break clearly above these to confirm a continuation higher, to a target at around 114.00.

The catalyst for a break higher might be U.S. employment figures released in the on Friday. This is probably the economic data release which causes the most volatility in financial markets.

An especially high figure, or higher-than-expected earnings, would probably lead to Dollar strength and a rise in USD/JPY in line with the bullish technicals.

Such an expectation is not so strange given the better-than-expected ISM non-manufacturing data released earlier in the week, which was surprisingly good, as well as the surprisingly high payrolls figure in January which showed 304k more jobs added to the economy, when the market had only been expecting 165k, and the long run average is nearer 200k.

The expectations in February is for 180k new jobs to be added, but an equally strong beat as January could see the Dollar hit new highs versus the Yen.

A breakthrough in negotiations between the U.S. and China over trade – as now seems increasingly likely - could also pave the way for the pair to rise, since it would probably weaken the Yen more than the U.S. Dollar, because the Yen is the greater safe-haven currency and tends to rise on negative global developments rather than positive ones.

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