Since breaking back below 100.0, price has failed to climb back above the watermark, trading just under it for an extended period of time despite pushing above it during US hours yesterday. Asian session saw price attempting one more time, but this time round was even less successful as compared to the US session attempt, with prices not even able to close above 100.0.
It is also interesting to note that USD/JPY actually rallied when USD was weakening vs all other majors during the same period, suggesting that the rally in USD/JPY is not USD driven, but perhaps risk appetite driven. This puts USD/JPY in a better position than other USD based pairs, which have to content with the question whether USD is getting stronger or weaker as equities continue to be highly volatile ever since Ben Bernanke’s tapering talk. This also increase upside risks of USD/JPY in the future – should USD strength becomes clear, we may potentially see USD/JPY rallying even faster, but any USD weakening may only have limited downside impact on prices.
Currently, Stochastic readings suggest that we are in a bearish cycle with both Stoch/Signal lines pointing lower heading towards the Oversold region. This is in line with the holding of 100.0, which exposes 99.50 as a viable bearish target for starters. Looking at where stoch levels are right now, it is highly likely that readings will be within the Oversold region should 99.5 is reached – which puts bulls back in the front seat should 99.5 proved to hold. This would allow for yet another potential push back towards 100.0, and perhaps even towards 101.0 considering short-term bullish pressure and USD/JPY bullish resilience discussed above.
Daily Chart show price finding some support in the form of a rising trendline that has been in play since the recovery from 94.0 Even though price was unable to break the consolidation zone found back in May, price will be able to make a comeback as long as the rising trendline is not broken. However, if a break does occur, we will be back within the 96.7 to 100.0 consolidation zone. Together with the topping Stochastic readings, there could be a case to be made for strong bearish cycle if Stoch levels press below 80.0 with a breach of 98.5 interim support.
Fundamentally, it seems that Japanese economy is starting to turnaround, which is a strong plus for confidence in Abenomics. As long as market trust remains with BOJ, we will be able to see further weakness in Yen. However, there should be some concern as to whether this confidence is sustainable. There are signs that US traders are choosing to ignore what Bernanke has said about QE tapers, preferring to believe that he would not be able to do that especially if US economy continue to head lower. The same could be said about BOJ, where market may be believing that BOJ will do something more soon even though Kuroda has said that BOJ is effectively “done for now”. If that is the reason why USD/JPY rallied from 94.0 to current levels, we could be in a rude bearish shock should BOJ truly does nothing to weaken Yen with added stimulus plans.
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