Monday, November 19, 2018

USD/JPY - 19 November 2018


Fundamental Highlights

The Dollar/Yen breaks lower as comments from a major Fed official drive traders away from the greenback. The US Dollar lost ground on Friday after the Fed Vice Chair, Richard Clarida made dovish comments relating to the future path of US interest rates and the US economy. Clarida pointed out that a “neutral interest rate state is what makes sense” and that the Fed is actually edging closer to such state given that a neutral state is defined with interest rates between 2.5% and 3.5%. Such comment meant that investors should not price in anything more than three rate hikes next year. Additionally, Clarida raised concerns regarding the ongoing slowdown in the global economy and claimed that there is a possibility that such slowdown might spill into the US.

For today, US Treasury yields should be a major focus for Dollar/Yen traders as the Treasury market will give traders an idea about the market’s opinion in regards to the future path of interest rates. By default, lower Treasury yields mean that the market expects lower interest rates ahead and this weakens the US Dollar. On top of that, traders need to also keep an eye on the performance of US stock indices as they remain a key driver to the Dollar/Yen pair. A rise in US equities signals optimism from investors and decrease the demand for safe haven assets/currencies such as the Yen.

Technical Analysis

Prices are currently consolidating around a key support level between 112.42 and 112.70, depending on the performance of US Treasury yields and US equities, the pair will either push higher by breaking above the 113.28 resistance or continue its downwards trend by breaking below the 112.42 support. Note that the bias remains on the downside given that prices are trading below all the three major moving averages.

Support: 112.42/ 111.95
Resistance: 113.28 / 113.65

Chart (H4)