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James Hyerczyk

Demand for the greenback continued on Friday with the Dollar/Yen edging up to its highest level since February 24. This puts it slightly below its high for the year at 112.226. The move is being fueled by a global scramble for funding in U.S. Dollars. We’re also saw some safe-haven buying of dollars after coordinated rate cuts by central banks and billions of dollars of fund injections failed to calm panicky markets.

On Friday, the USD/JPY settled at 110.870, up 0.257 or +0.23%.

Cross-currency basis swaps, which show the cost of borrowing dollars abroad, showed that strains remained. The premium over interbank rates that investors were paying to swap Yen for one-year dollar funding was around 68 basis points, close to the 2016 highs hit last week.

Everybody wants dollars and the Bank of Japan loves it. Although the Japanese government may be working on a stimulus package, it doesn’t seem to be in a hurry to get one completed. Furthermore, the BOJ has its hands tied with rates already negative and longer-term rates anchored. Besides both government and central bank officials would like to see a lower Japanese Yen because they help improve exports, which is good for the economy.


Daily Technical Analysis

The main trend is down, but momentum is clearly to the upside. The main trend will change to up on a move through the last swing top at 112.226. The downtrend will resume on a break through the last main bottom at 101.185.

The minor trend is up. This shifted momentum to the upside.

The main range is 112.226 to 101.185. Its retracement zone at 108.008 to 106.706 is new support. Trading on the strong side of this zone is helping to generate the upside momentum.


Short-Term Outlook

With upside momentum strong and the fundamental picture bullish as long as investors continue to demand dollars, we’re looking for investors to go after the February top at 112.226. Taking out this level should lead to a quick test of the April 24, 2019 main top at 112.405. This is a potential trigger point for an acceleration to the upside with the next major target the December 13, 2018 main top at 113.710.

Support is being provided by a steep uptrending Gann angle, moving up from the 101.185 main bottom at a rate of 1.00 per day since March 9. This angle comes in at 110.185.

If this angle fails as support then look for a potential retracement into the retracement zone at 108.008 to 106.706.

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