Yen Slips Top 4-Year Low As Market Sentiment Improves

Oct 20 21, 09:48 GMT

JPY retreated further against the USD reaching a four-year low level during today’s Asian session, yet also weakened against GBP and EUR in a sign of the safe haven’s weakness for the past days. It should be noted that market sentiment seems to be improved as US and Asian stockmarkets gained yesterday, which could imply some safe haven outflows for JPY. At the same time US yields continued to rise which could have pushed USD/JPY even higher, while the monetary outlook differentials of BoJ and the Fed seem to continue to favor the USD given BoJ’s extensive dovishness. Overall, we tend to maintain a bearish outlook for JPY and given the lack of high impact financial releases from US and Japan, we expect market sentiment to be the main guide for the Japanese currency today.

USD/JPY continued to rise yesterday reaching a four year high by testing the 114.55 (R1) resistance line during today’s Asian session. We tend to maintain a bullish bias for the pair as long as it remains above the upward trendline characterizing its movement since the 11th of October. Also, it should be noted that the RSI indicator below our 4-hour chart is nearing the reading of 70 implying a bullish sentiment for the pair. Should the bulls actually maintain control over the pair’s direction, we may see it breaking the 114.55 (R1) resistance line and aim for the 115.20 (R2) level. Should the bears say enough is enough and take charge of USD/JPY’s direction, we may see the pair reversing course, breaking the prementioned upward trendline and aim if not breach the 113.70 (S1) support line.

Pound traders eye CPI rates

The pound’s strengthening against the USD continued yesterday in the aftermath of BoE Governor Bailey’s comments, however the pound also strengthened against the EUR and CHF yesterday. Also, fiscally the UK Government seems to be in a tight spot as there are headlines of the UK Treasury being reluctant to increase spending as it could intensify inflationary pressures in the UK. Given that inflation was stressed by BoE Governor on Sunday, we expect pound traders to keep a close eye over the release of UK inflation data for September today and a possible acceleration of the headline rate could add more pressure on the BoE to tighten its monetary policy. On a fundamental level the UK economy is still facing shortages in supplies while tensions with the EU are still high given the UK’s intention to alter the Northern Ireland protocol regarding Brexit.

USD/CAD edged hesitantly lower yesterday testing the 1.2330 (S1) support line, which seems to repel the downward movement of the pair for now. We tend to maintain a bearish outlook for the pair as long as it remains below the downward trendline incepted since the 29th of September. It should be noted that the RSI indicator below our 4-hour chart is between the readings of 50 and 30, implying an advantage for the bears currently. Should the selling interest be extended, we may see the pair finally breaking the 1.2330 (S1) support line and aim for the 1.2250 (S2) level. Should the pair fail to break the 1.2330 (S1) level and buyers take the initiative over the pair’s direction, we may see it breaking the prementioned downward trendline and aim if not breach 1.2425 (R1) resistance line.

Today’s events and expectations

Today in the European session we get from the UK the CPI rates and at the same time Germany’s producer prices growth rate while later we note the release of Eurozone’s final HICP rate, all releases being for September. In the American session we get from Canada the CPI rate for September, while later we get from the US the US EIA weekly crude oil inventories figure. Also note that during the American session a high number of Fed policymakers are scheduled to speak.

USD/JPY H4 Chart