Yen Continues To Slip Lower

Oct 12 21, 08:38 GMT

The Japanese Yen continued to be on the retreat against the USD yesterday, reaching a level not seen since 2018 but also lost ground against the common currency and the pound, yet seems to have paused for now during the Asian session. Fundamentally rising energy prices could create substantial issues for the energy hungry economy of Japan and may increase its needs for USD. Also US yields continued to be on the rise and characteristically the US 10 year yield reached a level not seen since last April as investors expect the Fed to announce the tapering of its QE program in November’s meeting thus weakening safe haven JPY, as the interest rate differentials were highlighted between BoJ and the FED. It should be noted that Japans’ corporate goods prices accelerated more than expected on a year-on-year level in September, while during tomorrow’s Asian session we get Japan’s Machinery orders growth rate for August. Overall though we expect fundamentals to play the primary role for JPYs’ direction.

USD/JPY continued to rise yesterday breaking the 112.50 (S1) resistance line, now turned to support. We maintain a bullish outlook for the pair, yet today’s stabilisation in the Asian session seems to suggest otherwise. The RSI indicator below our 4-hour chart is still above the reading of 70, which confirms the bullish sentiment on the one hand, yet on the other may imply that the pair is overbought and could correct lower. Should the bulls maintain control over the pair’s direction we may see it breaking the 113.70 (R1) resistance line and aim for the 114.55 (R2) level. Should on the other hand a correction lower be preferred by the market and the bears take over, we may see the pair reversing course, breaking the 112.50 (S1) support line and aim for the 112.25 (S2) level.

GBP traders focus on UK’s employment data

The pound remained stable against the USD, EUR and CHF, yet fundamentally a crisis seems to be simmering underneath the surface for GBP. On the monetary front BoE Saunders’ comment over the weekend, that households should get ready for significantly earlier rate hikes due to inflationary pressures, tended to underscore BoEs’ current hawkish profile. Fundamentally, the EU and the UK seem to be heading towards a collision over Brexit, specifically the border at Northern Ireland, once again. The issue on the other hand, could also serve in the UK as a deflection to the country’s current problems, created mostly by the shortage presented in the supply chains, which seems to torment the UK economy. Today we note the release of UK’s employment data for August which are forecasted to show a tightening of the UK employment market.

GBP/USD maintained a sideways motion, with its price action revolving around the 1.3600 (R1) level. Currently we tend to maintain a bias for the rangebound movement to be continued. Please note that the RSI indicator below our 4-hour chart runs along the reading of 50, implying a rather indecisive market. Should the pair’s price action start to decline we may see it aiming if not breaching the 1.3430 (S1) support line which reversed the pair’s downward movement on the 29th of September. On the other hand should buyers be in control of the cable’s direction, we may see it breaking clearly the 1.3600 (R1) level and aim if not breach the 1.3750 (R1) resistance line which capped the pair upward movement on the 23rd of September.

Today’s events and expectations

Today during the European session, we get from the UK, August’s employment data and from Germany, October’s ZEW indicators. In the American session, we get the US JOLTS Job openings for August. On the monetary front, we note ECB’s Lane, Fed’s Vice Chair Clarida, Atlanta Fed President Bostic, Dallas Fed President Kaplan and Federal Reserve Board Governor Brainard are scheduled to speak. Also during tomorrow’s Asian session we get Japans’ machinery orders for August.

USD/JPY H4 Chart