USD/JPY Update 13 May 2020

Essential Insights:

• Falling Yield Capping Upside Gains.
• USD/JPY struggling to hold 107 handles.
• Mixed themes impacting the greenback.

Technicals:

USD/JPY has retreated from its previous peak at 107.700.

Prices are currently testing an important weekly zone at 107.000, there is scope for prices to fall lower and retest the descending trendline of the previously broken fallen wedge structure.

Alternatively, a daily bullish candle closure above the 107.000 level could see prices gain short term bullish momentum. A break above the 200-day EMA at 107.270 would positively indicate further potential bullish momentum to come.

Prices are also testing the 0.5% Fibonacci level, there is certainly scope for prices to fall lower towards the 0.618 ‘reversal’ level at 106.645, which is in line with the upper trendline of the falling wedge structure.

It is advised traders await a clear daily candle closure before forming a bias on this pair as current prices rest on a key decision area.

Fundamentals:

USD/JPY jumped above the 107 mark earlier this week, amid concerns over a second wave of covid 19 infections and carry trades from falling yields.

The US dollar has enjoyed bullish momentum after a speech from FED chair Powell today. Powell ruled out negative interest rates, we previously spoke about how the market began pricing in negative rates in April 2021 futures (check article: Negative Rates? What is driving yields lower).

Powell said that the FED are unanimously against a negative interest rate policy, arguing that the negative interest rates adopted by the likes of Europe and Japan has led to mixed results. It was also argued that there is a plethora of other policy options such as liquidity programmes and further quantitative easing.

As a result, the dollar index has picked up, trading slightly above the all-important 100 level. Falling yields have also pulled this pair lower, however it will be interesting to see if the current policies will be enough to support the continuous economic shocks the coronavirus has had on the US economy.