USD/JPY Recovers Sharply Higher As Risk Sentiment Improves

USD/JPY gapped higher at the weekly open and has extended gains on relief over concerns that had triggered a shift to risk aversion last week.

The main factors boosting risk appetite were a downgrade of Irma to a tropical storm from what was initially seen as a category five hurricane. Also adding relief was that there were no further missile tests over the weekend from North Korea which officials in the United States had foreseen as a possibility.

USD/JPY gapped above 108.13 which was this year’s low ahead of Friday’s break and has scaled back above the June low of 108.80 which had acted as support on several attempts in August.

This shift in sentiment is seen across the markets with US equities rallying while precious metals have fallen under pressure. The S&P 500 gapped higher at the open and is on the verge of breaking to record highs. The equity index was last seen trading at $2,481 for a gain of 0.81%. Gold prices have erased a bulk of Friday’s gains and last traded at $1,333 for a loss of 1%.

US Treasury yields are sharply higher with the 10-year yield erasing more than half of last week’s decline in a single day rally. The 10-year was last seen offering a yield of 2.121%, up 3.72% from Friday’s close.

The US Dollar index (DXY) also gapped higher at the open and extended gains in European trading, however, DXY broke below important support at 91.92 last week which reflects a multi-year low and remains below it.

The latest COT report showed a slight increase in the Japanese Yen net short following a draw in the prior six consecutive weeks. The net short held by non-commercials rose to 72,945 contracts in the week to September 5th from 68,524 contracts in the prior week. There was a build in both long and short contracts with the gross short rising to around the same size reported in mid-August.

USD/JPY has been in a clear downtrend from a peak posted on July 11th and although there is momentum behind the rally today, the broader technical outlook has not changed as a result of it. The first level of resistance for the pair falls at 109.39 which was prior resistance ahead of the gap up that resulted from the French elections in April and support that held the pair higher in June on a daily basis. The level also holds a confluence with the 61.8% Fibonacci retracement measured from The August 31st high to Friday’s low. Further resistance falls at 109.68 which acted as support after the gap higher following the French elections.

USD/JPY 4-Hour Chart

USDJPY 4H Sept 11

Jignesh is an analyst and trader, specializing in currencies and commodities. He utilizes a macro view as well as a proprietary method of pattern recognition that is based on the principles of Elliott wave. His focus is to assess strength in trends, and perceiving high potential turning points in the markets. He brings over 4 years of experience in his current role.