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James Hyerczyk
USD/JPY

The Dollar/Yen is trading steady in early Asia trading on Friday after falling sharply overnight as downbeat U.S. data cast a shadow over the economic outlook.

A stream of U.S. data showed jobless claims remained elevated at 860,000, while both housing starts and the Philadelphia Fed business index fell. The Fed this week said it expected the U.S. economy to shrink by far less than previously forecast in 2020 and promised to keep rates ultra-low for a prolonged period.

At 05:47 GMT, the USD/JPY is trading 104.796, down 0.067 or +0.06%.

Weaker demand for U.S. equities also increased the Japanese Yen’s appeal as a safe-haven asset.

Daily USD/JPY

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through 104.525 will continue the downtrend.

A trade through 107.049 will change the main trend to up. This is highly unlikely, but due to the prolonged move in terms of price and time, the USD/JPY is vulnerable to a potentially bullish closing price reversal bottom.

The short-term range 104.189 to 107.049. Its 50% level at 105.624 is resistance.

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Short-Term Outlook

The next major downside target is the July 31 main bottom at 104.189. Although Japanese officials aren’t happy with this week’s rapid rise in the Japanese Yen, they may not be able to stop the rally this time with the threat of intervention because this current move is being driven by uncertainty over the Fed’s ability to find new ways to stimulate the U.S. economy.

Although the Federal Reserve and the Bank of Japan say they are ready to ease more if needed, markets are beginning to doubt whether either of them has much scope left beyond monetizing debt. Meanwhile the Fed’s shift to near-zero rates this year gutted the dollar’s Treasury-JGB yield spread advantage while global uncertainty continues to drive investors into the safe-haven Japanese.

The longer-term charts indicate that a failure to hold 104.189 could lead to an eventual break into the 102.00 to 101.00 area.

For a look at all of today’s economic events, check out our economic calendar.

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