USD/JPY Set To Close The Week With The Largest Gain In 10 Months

After a brief pause yesterday, USD/JPY extended higher today, on track to post a fourth day of gains this week and to print the largest weekly gain since November. The pair was little impacted by North Korea’s latest test missile and gained despite a weaker dollar and a small decline in US equities.
The greenback fell under pressure in European trading and extended losses against several of its major counterparts after a weaker than expected US retail sales report. Sales in August declined 0.2% versus an expected gain of 0.1% and core retail sales rose 0.2%, missing the consensus for a rise of 0.5%.

The trade-weighted dollar index (DXY) has declined in the past two sessions to give back a bulk of this week’s gain and has fallen back below the 2016 spike low with bulls unable to defend the level. The index offers a somewhat mixed signal, however, as an inverted hammer print appears likely on a weekly chart.

USD/JPY has followed US Treasury yields higher this week. Similar to the exchange rate, the 10-year yield has shown strong gains this week, fully erasing last week’s decline, rising in five out of the past six sessions.

The S&P 500 broke lower from a three-day consolidation to fall back below the early August spike high. There has not been significant momentum behind the decline, suggesting a correction is taking place potentially on profit-taking following the earlier break to record highs.

USD/JPY has scaled above resistance at 110.66 today which is considered important as the level has been respected as support and resistance since the middle of March on a daily chart. Today’s daily close will be important as the pair has scaled above the level without closing above it on several occasions since mid-August.

The 110.91 level offers additional resistance slightly above 110.66 as it has been respected on a 4-hour chart. The pair touched a high of 111.33 ahead of the North American open and has fallen back below 110.91.

Although a failed attempt at 110.66 today can trigger a correction next week, dips in the pair are likely to be short-lived as a result of the bullish engulfing candle that is set to print on a weekly chart.

USD/JPY 4-Hour Chart

USDJPY 4H Sept 15

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.