Nick Nasad
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USD/JPY - Will Rally Extend?

The USD/JPY is correlated fairly well with equities and risk sentiment. With the sigh of relief in markets yesterday following progress on the debt ceiling/government shutdown, the pair managed to rebound, paring its losses from last week.

  • That is also close to about a 50% fib retracement of the downswing since September 11th and comes close to the 200-sma. Therefore, the key question is will the pair be able to extend its rally?
  • If so, we would look at the 61.8% retracement which coincides with a horizontal pivot near 99.10. That could cap any gains, though a push through that level implies we are back to a risk-on environment in which the JPY is sold.
  • We do have a bullish crossover of the 21 and 55 EMA's in this time-frame, a bullish sign, and the RSI has managed to push to the 70 level showing bulls in control (though also the possibility of a pullback).
Seems that the market has positioned itself for a positive resolution of the US debt ceiling/government shutdown and there could be further room to go in a relief rally on confirmation. The attention would then turn back to the monetary policies of the Fed and the BOJ, and on general macro news and company fundamentals. Extra stimulus makes me think that the investors would be buying higher yielders against the JPY - which includes the USD.

(For a current look at price action in the
USD/JPY, click below:)

- Nick