USD/JPY Extends Gains, Testing Critical Resistance

USD/JPY is on track to post a second day of gains and has wiped out last week’s loss in the two-day rally. The pair is seen testing important resistance and a reaction from the current area will be important for the broader trend.

USD/JPY has rallied over three hundred pips from Friday’s close in the early week and is seen testing resistance at the psychological 110.00 handle. There is also a declining trendline in play that connects a high posted in mid-August with a high posted at the end of August which is best seen on a 4-hour chart.

The recovery this week follows news of a downgrade of Irma to a tropical storm from an initial classification of a category five hurricane. Also impacting the return of risk appetite was a softening of tensions between US and North Korea relations.

USD/JPY extended gains despite the dollar recovery stalling as US Treasury yields continued to gain and as the S&P 500 broke to record highs by scaling above the prior August 8th high. Similar to USD/JPY, the 10-year yield extended higher for a second session and has wiped losses from the prior week. The US Dollar index (DXY) gained in the first half of European trading but has struggled to make a sustained break above 91.92 which marks the 2016 spike low.

The economic calendar was relatively light, the Bureau of Labor Statistics reported JOLTS job openings ahead of expectations for July with 6.17 million openings although the release did not have a significant impact on the exchange rate. The BLS will release producer price index figures on Wednesday in early North American trading.

The current area of resistance will be important for USD/JPY as the pair remains within a clear downtrend from the peak posted on July 11th. A bullish break can alter the technical outlook for the pair and signal a broader recovery.

Downside support is seen at 109.68 as the level held the pair higher following the gap up in April as a result of the French elections. A second level of support at 109.39 held the exchange rate higher in June on a daily basis and capped yesterday’s rally. A break below it signals the potential of a bearish continuation.

USD/JPY 4-Hour Chart

USDJPY 4H Sept 12

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.