USD/JPY: Things could get ugly if we break major support at 116.00
City Index February 8, 2016 8:12 PM
<p>After Friday’s not-as-bad-as-it-appeared NFP report, traders were optimistic that we would see risk sentiment return with Chinese markets on holiday this week, but so far […]</p>
After Friday’s not-as-bad-as-it-appeared NFP report, traders were optimistic that we would see risk sentiment return with Chinese markets on holiday this week, but so far those hopes have not been realized. It’s been an ugly start to the week for so-called “risk assets,” with global stocks, oil, and high-yield bonds all on the back foot at the start of the US session.
Beyond oil, one of the best indicators of global trader sentiment has been USD/JPY which is, not surprisingly, falling for the 6th consecutive day. On a technical basis, there’s strong support at the 116.00 level (from 116.25 as of writing) that buyers have defended repeatedly over the last 14 months. On each of the previous four occasions, the pair has surged by over 500 pips after testing this support zone, so there is certainly some ground for optimism among the bulls.
That said, the secondary indicators are hardly giving a strong bullish signal: the MACD has already rolled over and is once again trending lower below both its signal line and the “0” level, whereas the RSI indicator is not yet in oversold territory (where it was on the previous two rallies off 116.00 support).
From a fundamental perspective, there’s not much in the way of top-tier news releases in the early part of this week, and with the aforementioned Chinese holiday in play, we wouldn’t be surprised if USD/JPY consolidates above the 116.00 support level for a bit.
That said, if sentiment continues to sour or if we see negative US news from Fed Chair Janet Yellen’s Humphrey-Hawkins testimony (Wednesday and Thursday) or Retail Sales (Friday), that floor could quickly give way. In that case, the next major support level is all the way down around 114.00 which represents the 23.6% Fibonacci retracement of the entire 2011-2015 rally. Even if we do see a short-term bounce from this floor, medium- and longer-term traders will likely remain skeptical of the move below last week’s high at 121.00.
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.