USD/JPY bounces again but will 108.00 break before long?
James Chen April 19, 2016 1:45 AM
<p>As overall market risk from the Doha debacle appeared to fade on Monday, yen strength eased somewhat, prompting USD/JPY to bounce once again from its […]</p>
As overall market risk from the Doha debacle appeared to fade on Monday, yen strength eased somewhat, prompting USD/JPY to bounce once again from its major support level at 108.00. Since the first full week of the month, when the currency pair plunged down to the pivotal 108.00 level, it has attempted to break down but has been repeatedly thwarted by the strength of that support.
Despite the failure to reach an output freeze deal among major oil-producing countries on Sunday, and a resulting plummet in oil prices, crude oil pared most of those losses by the end of trading on Monday and global equity markets similarly rallied. This reduced safe-haven flows to the yen, providing a small amount of respite for the seemingly relentless strengthening of the Japanese currency in recent weeks and months. With the yen’s moderate retreat on Monday, USD/JPY was able to lift off 108.00 support once again after having come dangerously close to a breakdown.
Although the recently surging yen (and falling USD/JPY) has raised speculation that the Bank of Japan may at some point intervene to weaken its currency, skepticism remains over the effectiveness of the central bank’s attempts to do so, especially in light of its recent easing into negative interest rate territory, which had no lasting impact on restraining yen appreciation.
Since the beginning of February, the Japanese yen has generally surged sharply against the dollar, pressuring USD/JPY below successively lower support levels, including the key 116.00 and 111.00 levels, followed by the 110.00 psychological level, and finally hitting its major downside support target at 108.00 in early April. In the process, the currency pair established a new 17-month low slightly below 108.00 just last week.
In the event of a resumption of yen strength with the added catalyst of dollar weakness, and in the absence of a successful attempt by the Bank of Japan to intervene, a sustained breakdown below the 108.00 level could soon begin to target the next major downside objective at the 105.00 support level.
StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.