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USDJPY still moving along upward trend-line

THE USDJPY has been on the rise following the lows in January 2019. The upward move has taken the price of the currency pair from 107.50 steadily to the current price level of 111.50. This move constitutes a 6.93 per cent increase, from its lowest point during the flash crash in the first week of 2019.

There were several factors contributing to this upward trend. We view the most important factor as a possible expansion of the Bank of Japan's (BOJ's) bonds buying programme, which is closely related to the inflation rate targets that has been widely regarded as unattainable. To provide a comparison, the inflation target for the BOJ is at 2 per cent, while it has only clocked in at 0.2 per cent year-on-year at the end of January 2019. This has caused the USD to enjoy a relatively good bullish run against the JPY.

However, after the US Federal Open Market Committee (FOMC) meeting on March 21, 2019, the narrative for the USDJPY changed as the US Federal Reserve signalled a dovish stance and opted not to raise interest rates. They further went on to state that rate hikes for the year were unlikely.

Looking at the daily charts for USDJPY, the impact on the pair caused by the dovish FOMC stance is clear as day. Prior to the FOMC statement, USDJPY had been steadily moving within an equidistant channel. Upon release of the statement, the price fell sharply as the USD weakened considerably against the JPY; breaking through the bottom support of the equidistant channel. In fact, the USDJPY was hovering near the 200-day and 100-day moving averages before the statement. Following the statement release, the 100-day moving average crossed below the 200-day moving average, signifying a change in the price direction.

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At the time of writing, the USDJPY is on an upward trend as the price is still moving along an upward trend-line, which would function as a support.

The next immediate supports for the USDJPY can be seen around the 110.00 level, formed by previous lows between February and March 2019. Taking a Fibonacci retracement from the recent highs, in the middle of December 2018, to the lowest point in 2019, we see a confluence between the 61.8 per cent retracement level against the 110.00 price level. Coupled with the fact that this is a psychological level, we should see the price of the USDJPY arrested.

If the USDJPY were to break this support level, it would be possible to see the price test the 109.00 price level, which would be an approximate 50 per cent retracement. Alternatively, should the price bounce off 110.00, then it would be possible to see the price test the bottom of the broken equidistant channel as the next resistance.

  • The writer is senior strategist at Phillip Futures.

Disclaimer: Chartpoint is provided by Phillip Securities Research for information only, and should not be construed as investment advice.