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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