The pair is trading near session highs on the day, just shy of the figure level
The rationale behind trading the pair this week is simple, follow what equities are doing. The FX market has been relatively complacent in the wake of the trade wars rhetoric between US and China – that it waits on a signal from equities this week for any sort of moves, particularly in the yen.
When S&P 500 futures were sent tumbling yesterday, so did yen pairs as the currency strengthened. And when US equities turned the corner, yen pairs reversed losses and jumped higher to close the day.
As for USD/JPY, the rebound continues into Asian trading today and so far we’re seeing the pair close in on 107.00. What comes next?
On the daily chart, the pair has some key resistance levels to break through if the rebound is to be sustained. Sitting nearby is the 107.32 level, followed by the 61.8 retracement level @ 107.87.
A break of the 107.32 level will actually be a key psychological break in my view, as it stops the pattern of the lower highs and lower lows that has been developing in the pair since the turn of the year. So, that will be one to watch out for.
Meanwhile, looking closer at the hourly chart, the move towards the 107.00 handle itself may present some problems already for bulls. It also coincides with the 28 March high, and a double-top formation is being formed as we trade right now.
The trade in the pair remains that of risk sentiment – in particular with equities. The FX market has shrugged off much of the trade rhetoric, only until it impacts the stock market – so keep a close eye on S&P 500 futures as well as major bourses to get a feel of what yen pairs may do next.