USD/JPY Holds Support, Moving Back to the Recent Highs

USD/JPY is higher in today’s trading, trading near the 113.24 level, up 0.78% from Tuesday’s North American close, In yesterday’s session, USD/JPY failed an intraday rally attempt to 113.339 for a high, but continued to hold first support at the former rally high established in late May at 111.45. The ability to hold this support kept the pair well-positioned to resume the advance and attempt a breakout to new highs over the near term.

The dollar is currently attempting to stabilize following several days of weakness. The greenback failed to benefit from yesterday’s round of strong economic data. The second estimate of third quarter US GDP was released, which showed growth was revised up to an annual rate of 3.2%, versus consensus estimates of 3.0%, from 2.9% in the advance estimate.

In addition, US consumer confidence surged to a 9-year peak in November. The Conference Board reading of consumer confidence increased sharply to 107.1 for November from an upwardly revised 100.8 for October, which was originally reported as 98.6. This was the highest reading since the middle of 2007.

Also during yesterday’s session, Fed Governor Powell backed a December rate hike. He stated that incoming data showed the economy growing at a healthy pace with solid payroll growth and inflation gradually moving up to 2%. In Powell’s view, the case for an interest rate increase has clearly improved since the previous meeting in November. At present, fed fund futures are pricing in a 91.7% probability of an interest rate increase at the December 13-14 meeting.

Despite these dollar supportive events, the greenback remained under pressure. It appears DXY has merely been reacting to the extreme overbought condition which developed as a result of the advance from the November low. A reaction to an overbought condition should prove temporary, however. Therefore, USD/JPY is expected to maintain an overall upside bias and eventually break out to new rally highs. On a move above the November high at 113.90, the target becomes the highs established in mid-February and early March, near the 114.445-114.876 zone.

In today’s trading in the US, several economic data releases are on the calendar. At 8:15am EST, the ADP employment report for November is expected to show an increase of 160K jobs, from 147K last month. At 8:30am, EST Personal Income/Spending for October and the PCE Price Index are due to be released. These figures will factor into Q4 GDP estimates, as well as the interest rate decision in December. Consensus forecast is for Personal Income at 0.4% and Personal Spending at 0.5%. The Core PCE Price Index is forecast unchanged from the prior reading at 0.1%. Chicago PMI for November is then due at 9:45am EST. It is forecast at 52.0 following a reading in October at 50.6. Pending Home Sales for October is due at 10:00am EST (expected to rise by 1% month-over-month from 1.5% in September), followed by the Fed’s Beige Book at 2:00pm EST.

The latest Commitment of Traders report from the CFTC was released on Monday, with data as of the November 22nd close. The report indicated that large speculators increased long holdings of Japanese yen futures contracts by 4,098 and increased short positioning by 13,874 contracts. The current net long positioning decreased to 10,900 contracts as a result. This represents the fourth consecutive weekly decline in net long positioning of Japanese Yen futures contracts.

USD/JPY Daily Chart


Tracy L. Morganthall, CMT, has been a Technical Market Analyst for more than 20 years. She has experience analyzing and producing reports on equities, both domestic and international markets, as well as Forex and commodities. She attended Trenton State College in Trenton, New Jersey, earning a Bachelor's in Finance.