USD/JPY Technicals – Threatening to break new support 99.0

1st sign of weakness for USD/JPY? Price has crept back below 99.0 after trading above it during most of the Asian session today. This also marks the first time since BOJ’s announcement that USD/JPY has entered back below a lower consolidation zone. Yen has strengthened a little bit due to over-extension and the mildly “risk off” sentiment during early European hours due to falling German exports and import figures. Germany has not been performing well with the latest employment data showing shrinkage in number of employed workers as against expectations for growth.

This strengthening of Yen is interesting as USD/JPY continued higher despite a dismal NFP print last Friday which resulted in USD taking a big hit due to renewed hopes for QE3 extensions. This should have a stronger effect on USD/JPY – a weakening USD should mean lower USD/JPY naturally, and the “risk off” sentiment that pulled stocks lower following the news should also result in strengthening of JPY due to safe-haven flows. However, USD/JPY was simply riding on BOJ’s announcement and not affected by classic risk on/off movements. With today’s reaction to the German news, we are looking at USD/JPY’s immunity to overall risk trends breaking and that could mean further strengthening of  Yen should global economic outlook deteriorates with each passing negative news.

Hourly Chart

From a technical perspective, Stochastic reading suggest that further sell off is still possible with readings firmly pointing downwards. If the break from 99.0 is confirmed, price may be able to hit the lower end of 8th April consolidation between 98.30 – 99.0. Break of 98.30 will open up 97.0 as further possible downside target. However, it is likely that Stoch readings may already enter Oversold region when price is between 98.0 – 98.3, as such short-term bears may require stronger fundamental catalyst to allow for further breaks despite current uptrend bias and short-term oversold signal from Stochastic indicator.

Daily Chart

From daily chart, the small decline seen is not enough to derail current bullish train. Stochastic readings is the lone signal of bearish tone with readings deep into Overbought region. However, counter-trend signals using Stochastic tended to be unreliable during times of strong trend. Current push certainly classify as one. Prices will need to trade below the rising trendline and preferably below 96.6 before any long-term bearish push can be established. This is not impossible though, with Europe woes continue to fester and Germany looking shaky. If the lone ranger in Europe start to show shrinking GDP figures, it will not be long before panic will spread and safe haven flow will allow Yen to strengthen from here out.

Also, where else can USD/JPY realistically go from here? Finance Minister Tara Aso stated just yesterday that Yen strength has been corrected. Economic Minister Amari stated back in Jan that Yen was already back in line with fundamentals, when USD/JPY was trading around  90.0. It seems that the Japanese Government is happy with current Yen levels, which would suggest that BOJ would receive less pressure to have them execute bolder stronger more courageous monetary policies. This will severely limit upside potential for USD/JPY fundamentally, and reduce future bullish momentum to rely purely on speculative actions.

More Links:
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