USD/JPY pushed higher early morning, continuing the uptrend last week which ended near the weekly high. Price appeared to be topping around 97.0 post BOJ stimulus announcement, but USD/JPY pushed up significantly after the much weaker than expected US NFP print, pushing price ahead of Asian highs and ended the week above 97.5.
This push sent price above the Upper Bollinger Band temporarily, with the next period sending price level back within 2 std dev. Currently, we’re still awaiting a confirmation for a test back towards the mean. Stochastic reading agrees with a lower push scenario, with readings pointing slightly lower after topping this morning, suggesting a move back to test 5th April Asian highs possible. However, both Bollinger Bands and Stochastic tended not to provide good contra-trend signals when a strong trend is underway. We can simply look at the aforementioned Asian high on 5th April to find that bearish follow-through has been found wanting on that occasion. Certainly, a push down is possible, but the magnitude of the push and the profitability of such a trade may be suspect when bulls can take over quickly in this climate.
The overall bullishness can be seen from the daily chart. Stochastic readings are pointing sharply higher, yet sill below the Overbought region. Price has just cleared the 2013 highs and is continuing higher without any sign of slowing down. Using Fib extensions from Nov 15 to 1st Jan, we can see the first 161.8% extension has been providing support back in Feb and March, which suggest that the 231.8% next extension may provide some resistance if current momentum is not able to maintain pace.
Comparing with other majors, it seem that USD received a kicked this morning, with the Greenback strengthening against all major currencies. Generally such a move would normally mean “risk off” sentiment in the market, but USD/JPY remains lifted, which is in line with the disappointing NFP print. However USD/JPY did not go down as a risk off play would, but moved up higher instead. Looking across equities, Hang Seng Index is trading lower, Australia’s ASX is trading lower as well with Singapore’s STI and Korea’s KOSPI trading lower. This suggest that the risk off sentiment analysis is correct, and Japan’s N225 trading +2.5% and USD/JPY higher appears to be the odd one out in the market.
What the above observation implies, is that we could see USD/JPY being less influenced by risk trends in the short term. Prices are currently moving in their own bubble insulated by global negative sentiment thanks to BOJ’s intervention. This is good for short-term bulls, but long term sustainability of this rally may be suspect especially if risk trends continue to deteriorate – USD/JPY may end up collapsing in the future as bullish sentiment evaporate and price tank to catch up with the rest of the currencies to better accurately reflect worsening global outlook post BOJ euphoria.
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