USD/JPY Extends Move to the Upside, Reaches Best Level Since mid-March
Tokyo (May 9) USD/JPY has followed through on Monday’s gain in today’s trading, reaching 113.86 for a high. The pair is currently just off the high at 113.80, a gain of half a percent over Monday’s North American close.
The US dollar index (DXY), which measures the greenback’s strength against a basket of six major currencies, is up a quarter of a percent today, despite less hawkish comments on Monday from Federal Reserve officials Bullard and Mester. However, DXY is now up against an area of resistance at the 99.50 level, however, thus a period of consolidation has the potential to develop over the near-term.
As for USD/JPY, the pair is currently heavily overbought and with reach of the 78.6% retracement level of the decline from the March high. Thus, new buying at current levels appears to carry a high degree of risk.
In addition, on the hourly chart, long upper shadows on the candles have developed, signaling hesitation on the part of the bulls. At the same time, on the hourly chart, a negative divergence has developed between price action and the Stochastic, a price momentum indicator. Negative divergences often precede periods of consolidation or correction.
However, a period of consolidation or a pullback is expected to represent a buying opportunity, given the pair’s ability to clear the 112.00 as well as the 61.8% retracement level of the March-April sell-off. The break above this level increases the probabilities of an eventual complete retracement with a move to the 115.50 level.
The ability of the 112.00 level to reverse roles and provide support on May 5th is also a constructive sign for USD/JPY. As long as this level remains intact on any upcoming corrections, the broader bias for the pair will remain to the upside.
On Monday at 20:00 ET, average cash earnings, year-over-year, was reported at -0.4% versus expectations for a reading at 0.4%. Overtime pay for March was reported at -1.7% versus a prior reading at 0.6%. Both are low impact reports.
Foreign reserves for April is due to be reported at 19:50 ET today, followed by the coincident indicator and leading index at 01:00 ET on Wednesday. Bank of Japan Governor Kuroda will then speak Wednesday at 17:00 ET.
In the US, there are no high impact economic reports on today’s calendar. JOLTS job openings and wholesale inventories, both low impact, are due at 10:00 ET. The next high impact report out of the US is due Thursday, with the release of April PPI at 08:30 ET. Friday’s calendar in the US is busy, with the release of CPI and retail sales, both for April, at 08:30 ET.
Source: EconomicCalendar
