USD/JPY Outlook: Bears taking control up to January’s Lows.

  • Tensions and growth concern fuel demand for safe-haven assets.
  • US upcoming rate cut providing mixed signals to USD/JPY traders.
  • USD/JPY technically bearish in the long term, break below 106.00 on the table.

The USD/JPY pair has traded in a roughly 120 pips’ range these last few days, finishing it little changed just below the 108.00 figure, yet not before establishing a fresh July low of 107.20. The ongoing global economic downturn kept fueling demand for safe-haven assets, although yen gains are partially offset by record highs on Wall Street.

US indexes hesitate this past week, amid mixed messages from Fed’s official about the central bank’s approach to rates cuts. Policymakers are certain that some “preventive” action is required, although it’s still unclear whether the central bank will cut by 25bps and stand pat, or if it will be more aggressive, cutting by 50bps before the year ends. Nevertheless, not only the US central bank is in the easing path, and “easy money” maintained equities near records, despite some dismal earnings reports.

Fueling growth and the Federal Reserve are leading the way.

Uncertainty about what the Fed will come up with next have favoured demand for government debt, alongside persistent fears of a global economic slowdown. Treasury yields fell sharply, recovering from weekly lows just modestly, to end the week with losses.

Further fueling growth concerns, the Japanese Merchandise Trade Balance posted a larger-than-expected surplus of ¥589.5B, but as a result of an unexpected drop in imports, down by 5.2% when compared to a year earlier. Exports also declined in the same period by more-than-anticipated, falling by 6.7%. National inflation rose in June by 0.7% YoY as expected, although the core reading, which excludes volatile food and energy prices, resulted in 0.5%, below the market’s forecast of 0.6%. Core inflation in Japan slowed to its weakest in almost two years.

The Bank of Japan’s massive stimulus program seems to be doing to push inflation higher, and speculation is that policymakers will have no choice but to expand stimulus.

TECHNICAL OUTLOOK

Downtrend still persists as I was discussing this with my analyst team, the short term support received a massive break with a solid candle propelled by the fundamentals. Currently, we are seeing a retest back to the resistance which already triggers a short order.
Massive rejection pin bar at resistance. The very same level which acted as short term support.
Bears will take control USD/JPY back to January’s low.

See illustration

Expect minor pullbacks on the lower timeframes.

USD/JPY sentiment poll

According to the Sentiment tool around the USD/JPY pair is firmly bearish, as those looking to sell the pair outpace those looking to buy it. Sellers account for 67% of the polled experts for the upcoming week, decreasing to roughly 40% in the following time frames. Bulls, however, represent 32% and 36% respectively in the monthly and quarterly views.

TRADE SAFE AND HAVE A GREAT TRADING WEEEK AHEAD. Leave a comment below and let’s discuss.

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