USDJPY recovery under review
Tony Sycamore September 26, 2019 1:23 PM
After falling sharply yesterday following the news of an impeachment enquiry into U.S. President Donald Trump, USDJPY rebounded overnight in impressive fashion. In this note, we examine the catalysts for the overnight recovery and assess whether the rally in USDJPY can continue. Boosting USDJPY was positive news on the trade front from two different sources. A bullish suggestion from President Trump that a deal with China may be reached sooner than expected coincided with news that China had agreed to make additional purchases of soybeans and pork. Elsewhere, it was confirmed that the U.S. and Japan had reached a limited trade agreement to cut tariffs on U.S. farm products including beef, pork and cheese.
After falling sharply yesterday following the news of an impeachment enquiry into U.S. President Donald Trump, USDJPY rebounded overnight in impressive fashion. In this note, we examine the catalysts for the overnight recovery and assess whether the rally in USDJPY can continue.
Boosting USDJPY was positive news on the trade front from two different sources. A bullish suggestion from President Trump that a deal with China may be reached sooner than expected coincided with news that China had agreed to make additional purchases of soybeans and pork. Elsewhere, it was confirmed that the U.S. and Japan had reached a limited trade agreement to cut tariffs on U.S. farm products including beef, pork and cheese.
Higher interest rates also proved supportive for USDJPY following comments from Chicago Fed President Evans. Evans who has earnt a reputation for being a reliable dove, told reporters that he thought after two recent rate cuts inflation would overshoot and the reason why he omitted including further cuts in his 2019 forecast.
In response, the yield on U.S. 10-year notes closed the session near 1.73%, 8bp higher than where they started the day. As outlined in this article recently, https://www.cityindex.com.au/market-analysis/usdjpy-recovery-continues/ there is a positive correlation between USDJPY and U.S. interest rates, i.e. when U.S. interests rates rise it is a positive for USDJPY and vice versa.
Also, from the article above, we suggested buying USDJPY on a corrective pullback to 107.50/30 with a sell stop placed below 106.30. While USDJPY did overshoot the buy zone mentioned above, the overnight rebound goes some way to suggesting a corrective Wave iv low is in place at yesterday’s 106.96 low.
Should USDJPY now break and close above the resistance provided by the 200-day moving average 107.85/90 area, it would suggest that Wave v higher has commenced, targeting a move towards 109.30/50.
In short, we continue to like USDJPY higher. However, to protect against ongoing volatility, we advise raising the stop loss on long USDJPY positions from 106.30 to 106.90.
Source Tradingview. The figures stated are as of the 26th of September 2019. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation
TECH-FX TRADING PTY LTD (ACN 617 797 645) is an Authorised Representative (001255203) of JB Alpha Ltd (ABN 76 131 376 415) which holds an Australian Financial Services Licence (AFSL no. 327075)
Trading foreign exchange, futures and CFDs on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange, futures or CFDs you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss in excess of your deposited funds and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange, futures and CFD trading, and seek advice from an independent financial advisor if you have any doubts. It is important to note that past performance is not a reliable indicator of future performance.
Any advice provided is general advice only. It is important to note that:
- The advice has been prepared without taking into account the client’s objectives, financial situation or needs.
- The client should therefore consider the appropriateness of the advice, in light of their own objectives, financial situation or needs, before following the advice.
- If the advice relates to the acquisition or possible acquisition of a particular financial product, the client should obtain a copy of, and consider, the PDS for that product before making any decision.
This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.
GAIN Capital Singapore Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the GAIN Capital group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), GAIN Capital Singapore Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact GAIN Capital Singapore Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.
In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither GAIN Capital Singapore Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.
GAIN Capital Singapore Pte. Ltd. is not under any obligation to update this report.
Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.
Cryptocurrencies are not legal tender currency and trading of derivatives on Cryptocurrencies are currently not covered under any regulatory regime in Singapore. Consequently, investors should be aware they do not have protection under the Securities and Futures Act (Cap. 289). Please ensure that you are fully aware of the risks.