usdjpy waiting for a break 1390722015

It has been a fairly quiet session in Asia, although USDJPY was strengthened early in the session as the Nikkei came back online after three days on holiday. The Nikkei had some catching up to do, with the Nikkei 225 sinking over 2% in the morning session which resulted in a rally in the yen.

Overall, USDJPY appears to be trapped in medium-term sideways wedge formation. The market is juggling the idea of tighter monetary policy in the US with the safe haven attractiveness of the yen. Fears about the health of the global economy, underpinned by deteriorating economic indicators from China and turmoil in emerging markets, are pushing investors towards the yen and other safe haven assets, even at the expensive of the global reserve currency, the US dollar.

Meanwhile, this concern is leading investors to question prior assumptions about tighter monetary policy in the US, with the Fed choosing to remain on hold this month largely due to those fears. There’s an increasing possibility that the Fed won’t raise interest rates this year, which is casting doubt over recent US dollar strength. And, if these concerns prove to be well-founded then the US dollar may face intense selling pressure in the medium-term.

From a technical perspective, USDJPY looks to be in a wait-and-see mode, with the pair sticking ever closer to the all-important psychological level around 120.00. SMAs are bunching up as the pair’s trading range narrows, indicating that investors are unsure of what direction USDJPY should be heading in. Accordingly, we’re waiting for a break of the aforementioned wedge formation before pushing our bias heavily in either direction.

Source: City Index

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