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USD/JPY Jumps above 3 Yr Trendline, 112 on Strong US Inflation Data

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USD/JPY Rate Forecast Talking Points:

  • The ONE Thing: USD/JPY has broken out of a consolidating move, which could pave the way higher for more gains as fear appears to be absent in the market. Trade war developments are not hurting business sentiment, and USD strength appears to be a theme re-emerging.
  • Options premium over the coming month for USD/¥ shows fear is receding alongside the willingness to pay a premium to protect against outsized ¥ strength.
  • USDJPY jumping 1% can be seen through Ichimoku as trend resumption. The consolidation since May all took place above the Ichimoku cloud, which argues that uptrend continuation is now in play.
  • Trade wars have been in the news. If you’re not familiar with trade wars and their history,We’ve got you covered

KEY TECHNICAL LEVELS FOR JAPANESE YEN RATE TO US DOLLAR:

Overall Bias: Bullish above the Ichimoku Cloud

Resistance: ¥114.20 per USD, November closing high

Spot: ¥112.00 per USD

Support: ¥110.82 9-day midpoint

US PPI Shows Inflation Is Quickening

Despite persistent media fears about a trade war being the death of the global economy, spot and option trades around USD/JPY are seeing blue (or green) skis ahead. The Yen, typically a barometer of risk sentiment and seen as a bit of a haven asset, continues to weaken and fell to the lowest levels against the USD on Wednesday since early January.

In alignment with a higher spot USDJPY was the US Treasury 2-year yields. The US PPI final figures showed the highest demand since 2011.

See what we see when looking at the Japanese Yen. Check out our new Q3 Yen Forecast here.

USDJPY Put Premiums Dissipate As Spot Rises

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Source: Bloomberg

The chart above shows the ratio of premiums paid over the coming month for out of the money USDJPY calls to out of the money USDJPY puts. A negative number, which we’ve seen for all of 2018 means a put premium is the present reality of the market.

As the put premium increases, the spot price of USDJPY tends to fall as you can see with the blue area and the orange line falling together.

However, the put premium (blue line) has dissipated. As such, spot is rising. If the premium shifts to the calls, it means that traders are not paying a premium to protect against outsized USDJPY strength, which would mean that opportunities on the long side are in favor.

Should The ¥ Weaken If a Trade War Escalates?

FX traders tend to become accustomed to looking at JPY crosses the first time anything seen as negative emerges in the media. Therefore, when news emerged about the initiation of a Trade War as US President Trump began tariffs on China, the initial thought was likely that USD/JPY was going to respond by falling from Trendline resistance.

However, the Japan economy is undoubtedly an export economy. A key part of Abenomics was to encourage inflation through increased business activity that was helped by a weak ¥ though this was not outright stated.

The problem, as outline by Vincent Cignarella of Bloomberg is that the two largest customers of Japan’s goods are the two countries taking the headlines as the key players in the trade war. At the same time, ¥ strength has been absent and likely for good reason. Traders may do well to consider a new theme emerging in the market of persistent ¥ weakness.

USDJPY Chart: The Price Held above Ichimoku, Now Faces Resistance

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Chart Source: IG UK Price Feed. Created by Tyler Yell, CMT

Technically Speaking on USD/JPY:

The chart above shows USD/JPY over the last three years. During that time, we’ve moved persistently lower with a few shocks due to geopolitical developments. However, as US President Trump continues his path forward, it appears that spot FX traders may rely on a different narrative for USDJPY.

In short, you can see the spot price has broken above the 3-yr trendline that began in June 2015. Additionally, since April, USDJPY has traded above the Ichimoku cloud.

The Ichimoku cloud is a complex indicator on the surface, but a rather intuitive technical way to identify trend and momentum on multiple time frames.

Should the spot price continue to trade above the Ichimoku cloud and the 3-yr trendline, traders may want to consider a move toward the November highs around 114.50 if not higher. Only a break and close below the cloud and the rising channel near ¥ 109 per USD would argue for a false break of the trendline.

New to Ichimoku? Click here for a free guide if you’d like to learn more

More For Your Trading:

Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts for Q3 have a section for each major currency, and we also offer an excess of resources on USD-pairs such as EUR/USD, GBP/USD, USD/JPY, AUD/USD. Traders can also stay up with near-term positioning via our popular and free IG Client Sentiment Indicator.

Forex Trading Resources

DailyFX offers a surplus of helpful trading tools, indicators, and resources to help traders. For those looking for trading ideas, our IG Client Sentiment shows the positioning of retail traders with actual live trades and positions.

Our trading guides bring our DailyFX Quarterly Forecasts and our Top Trading Opportunities, and our real-time news feed has intra-day interactions from the DailyFX team. And if you’re looking for real-time analysis, our DailyFX Webinars offer numerous sessions each week in which you can see how and why we’re looking at what we’re looking at.

If you’re looking for educational information, our New to FX guide is there to help new(er) traders while our Traits of Successful Traders research is built to help sharpen the skill set by focusing on risk and trade management.

—Written by Tyler Yell, CMT

Tyler Yell is a Chartered Market Technician. Tyler provides Technical analysis that is powered by fundamental factors on key markets as well as t1rading educational resources. Read more of Tyler’s Technical reports via his bio page.

Communicate with Tyler and have your shout below by posting in the comments area. Feel free to include your market views as well.

Discuss this market with Tyler in the live webinar, FX Closing Bell, Weekdays Monday-Thursday at 3 pm ET.

Talk markets on twitter @ForexYell



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Forex

USD/JPY Rate Risks Fresh Monthly Highs as Overbought Signal Persists

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Japanese Yen Talking Points

USD/JPY remains overbought as Federal Reserve Chairman Jerome Powell strikes a hawkish outlook in front of U.S. lawmakers, and recent price action keeps the topside targets on the radar as the exchange rate initiates a fresh series of higher highs & lows.

Image of daily change for major currencies

USD/JPY Rate Risks Fresh Monthly Highs as Overbought Signal Persists

Image of daily change for USDJPY

USD/JPY bounces back from the session-low (112.71) even as U.S. Housing Starts contract 12.3% in June, with Building Permits narrowing 2.2% during the same period, and the dollar-yen exchange rate may continue to appreciate over the remainder of the week as the Federal Reserve appears to be on track to further normalize monetary policy in 2018.

The testimony from Governor Powell suggests the Federal Open Market Committee (FOMC) will continue to embark on its hiking-cycle over the coming months as ‘incoming data show that, alongside the strong job market, the U.S. economy has grown at a solid pace so far this year.’ In turn, Fed officials may show a greater willingness to implement four rate-hikes this year as the committee ‘believes that–for now–the best way forward is to keep gradually raising the federal funds rate, and the FOMC may continue to prepare U.S. households and businesses for higher borrowing-costs despite the growing threat of a trade war with China.

Image of Fed Fund Futures

Keep in mind, Fed Fund Futures now highlight a greater than 60% probability for a December rate-hike, and expectations for higher interest rates may continue to prop up USD/JPY especially as the Bank of Japan (BoJ) sticks to its Quantitative/Qualitative Easing (QQE) Program with Yield-Curve Control.

With that said, USD/JPY may continue to exhibit a bullish behavior as the exchange rate initiates a bullish sequence and pushes to a fresh monthly-high (113.14), and the topside targets will stay on the radar as long as the Relative Strength Index (RSI) sits in overbought territory.

USD/JPY Daily Chart

Image of USDJPY daily chart

  • Broader outlook for USD/JPY remains constructive as both price and the RSI preserve the bullish trends from earlier this year, with the pair at risk of extending the advance from earlier this week as it carves a string of higher highs & lows.
  • Another close above the 112.40 (61.8% retracement) to 112.80 (38.2% expansion) region opens up the Fibonacci overlap around 113.80 (23.6% expansion) to 114.30 (23.6% retracement).
  • Will keep a close eye on the RSI as it trades in overbought territory, with a move below 70 raising the risk for a pullback in the exchange rate as the bullish momentum wanes.

For more in-depth analysis, check out the Q3 Forecast for the Japanese Yen

Interested in having a broader discussion on current market themes? Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups!

Image of DailyFX economic calendar

Additional Trading Resources

Are you looking to improve your trading approach? Review the ‘Traits of a Successful Trader’ series on how to effectively use leverage along with other best practices that any trader can follow.

Want to know what other currency pairs the DailyFX team is watching? Download and review the Top Trading Opportunities for 2018.

— Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.



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EUR/CAD Chart Triangulating, Downside Break Favored

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Check out the DailyFX Q3 Euro Forecast forecast for our intermediate-term fundamental and technical perspective.

EUR/CAD is a cross-rate we’ve been watching recently given its technical positioning on the daily/weekly chart and its price action on the 4-hr chart. The top and drop in late-June put price back below a slope rising up from February 2017 in addition to the bottom of a shorter-term channel since the end of May.

Since declining below these thresholds we’ve seen a weak response. Looking at the 4-hr chart, we initially viewed the price sequence over the past month+ as an upward leaning head-and-shoulders pattern, but more recently with a contraction in price action we are seeing a triangle form. It could make for a complex right shoulder, but focus is now centered on the developing wedge. (Either way, whether one considers it a bearish wedge break or H&S breakdown, bias is the same…)

Given the context of the aforementioned daily slope/channel as well as the chart leaning lower off the March high, a downside break of the wedge is preferred. An undercut will initially have a swing-low from mid-June in focus in the vicinity of 15150/115, followed by a line running over January right around 15000 (yes, this t-line could be the neckline of a broader head-and-shoulders pattern). Beneath there lies the low near 14900 from the end of May.

EUR/CAD Daily Chart (Slope in play)

EUR/CAD Chart Triangulating, Downside Break Favored

Check out these 4 core tenets for Building Confidence in Trading.

EUR/CAD 4-hr Chart

EUR/CAD 4-hr chart, wedge forming...

We’ll take it one step at a time. A break below the bottom of the pattern on the 4-hr will have the trade in motion, with a stop placed back inside the pattern. Targeting 15150/115, 15000/4917. We’ll play it by ear as targets near – if momentum is strong, then looking to extend the trade, if momentum stalls then look to start peeling off the position.

On the flip-side, in the event of a breakout to the top-side and recapture of the aforementioned slope, traders may want to play the wedge breakout from the long-side – but given it will be uphill, on this end it is likely a trade which will be avoided.

***Updates will be provided on this idea and others in the trading/technical outlook webinars held on Wednesday and Friday. If you are looking for ideas and feedback on how to improve your overall approach to trading, join me on Thursday’s for the Becoming a Better Trader webinar series.

For another recently expressed bearish bias on this cross, check out Tyler Yell’s take on EUR/CAD.

Resources for Forex & CFD Traders

Whether you are a new or experienced trader, we have several resources available to help you; indicator for tracking trader sentiment, quarterly trading forecasts, analytical and educational webinars held daily, trading guides to help you improve trading performance, and one specifically for those who are new to forex.

—Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter at @PaulRobinsonFX



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British Pound May Rebound on UK Inflation Uptick

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TALKING POINTS – UK CPI, BRITISH POUND, POWELL, BEIGE BOOK, US DOLLAR

  • First UK CPI gain in seven months might boost British Pound
  • US Dollar may extend gains on Powell testimony, Beige Book
  • Lull in top-tier event risk makes for quiet Asia Pacific trade

A lull in high-profile event risk translated into quiet consolidation across the G10 FX space in Asia Pacific trade. Volatility might make a comeback in European market hours however as UK CPI data comes across the wires. The headline on-year inflation rate is expected to rise to 2.6 percent, marking the first increase in seven months.

The British Pound suffered heavy losses yesterday ahead of a House of Commons vote on an amendment that would force the UK into the EU customs union if no new post-Brexit trade agreement were reached. Prime Minister Theresa May opposed the move and speculation that it might pass anyway stoked worries about an imminent leadership challenge.

The government prevailed by a razor-thin majority, de-escalating the situation at least somewhat. That coupled with a strong CPI print that reminds investors of an incoming BOE interest rate hike might offer Sterling a lifeline. The priced-in policy path reflected in OIS rates puts the probability of tightening at Augusts’ meeting of the rate-setting MPC committee at a healthy 77.6 percent.

Later in the day, another day of testimony from Fed Chair Powell is in focus. This time, he will appear in the House of Representatives having spoken before a Senate Committee yesterday. A hawkish lean in those comments drove the US Dollar higher yesterday, as expected. More of the same coupled with an upbeat Fed Beige Book survey might keep the greenback on the offensive.

See our free guide to learn how to use economic news in your trading strategy!

ASIA PACIFIC TRADING SESSION

British Pound May Rebound on UK Inflation Uptick

EUROPEAN TRADING SESSION

European Trading Session Economic Calendar

** All times listed in GMT. See the full economic calendar here.

FX TRADING RESOURCES

— Written by Ilya Spivak, Currency Strategist for DailyFX.com

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter



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