By Fast Brokers
The USD/JPY is fighting back above our 2nd tier uptrend line again after U.S. Personal Spending came in slightly above analyst expectations. U.S. equity markets are reacting positively, giving USD/JPY bulls an incentive to hold on. Additionally, U.S. Treasuries are attempting to stabilize while Geithner reassured the Chinese that U.S. debt is still a safe investment.
Why is this important for the USD/JPY? Well, investors have been selling the currency pair despite the uptrend in U.S. equities, showing a loss of confidence in the Dollar. The USD/JPY is normally positively correlated with the S&P. With the Carry Trade burnt, investors are moving the currency based on more comparative economic fundamentals. The U.S. is making a concerted effort to restore faith in the Dollar, which is keeping the USD/JPY afloat above our 2nd tier uptrend line. For if this trend line doesn’t hold, we could witness a sharp reversal towards our 1st tier uptrend line as the currency pair buckles under the pressure of its downtrend.
Action in the USD/JPY serves as an important gauge as far as the Dollar is concerned. If the Yen continues to appreciate against the Dollar despite rising U.S. equities, this could be a sign of a loss of confidence in America’s ability to balance its budget in the future. Therefore, it will be interesting to see if the USD/JPY can rise should U.S. equities continue their breakout to the upside.
On another note, Japan reported an encouraging improvement in Average Cash Earnings, another indicator that business is picking up. Therefore, all signs continue to point towards a global economic recovery/stabilization. China’s Manufacturing PMI is still showing expansion, which bodes well for Japanese exports due to the economic coupling of the two nations.
Despite the USD/JPY finding near-term support, we maintain our bearish outlook on the USD/JPY trend wise. We haven’t seen any game-changing, fundamental moves to the upside to swing the momentum. There are still 5 downtrend lines bearing down on price with the highly psychological 100 level hanging in the distance. However, the USD/JPY may begin to wake from its sideways action as our trend lines collide.
Fundamentally, we find resistances of 95.82, 96.33, 96.90, 97.45, and 97.98. To the downside, we see supports of 95.12, 94.43, 93.77, 93.11, and 92.65. The 100 level serves as a key psychological barrier with 95 acting as a psychological cushion. The USD/JPY is currently exchanging at 95.72.
Market Commentary provided by Fast Brokers.
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