JPY – Reversal of Half of Intervention Gains, Yen Awaits Breakout

The USD/JPY pair traded narrowly around 159 on Tuesday. The record intervention on July 30-31 pushed the pair down from around 164 to 155.22, but more than half of those gains have since been given back. The Bank of Japan kept interest rates unchanged the same week as the intervention, and the futures market is pricing in a slightly higher than 50% probability of a rate hike next.

The USD/JPY pair broke below the key 25-day moving average at the end of last month, and also broke below a large upward trendline, suggesting a potential for continued weakness in the medium term. However, the charts show signs of a rebound in the RSI and Stochastic Oscillator from their lower ranges, so a short-term rebound should be anticipated. Resistance levels are seen at 159.50 and 160, with stronger resistance estimated at the 50-day moving average at 161.20 and 162. Nearer support levels are seen at 157.50 and 156.20. The key support level to watch is 155, which was tested in early trading last Monday. Going back even further, the exchange rate also fell to a low of 155.02 on May 6th, before embarking on a sustained upward trend for over two months. Therefore, it is expected that if this level is clearly breached, the USD/JPY pair may begin a new wave of decline. The next supporting levels will be seen at 154 and even 152.50, with the key level pointing to 150.

Forecast Range:
Resistance 159.50 – 160.00 – 161.20 – 162.00
Support 157.50 – 156.20 - 155.00** - 154.00 – 152.50

This Week's News Highlights:

10/8
Japan's June Current Account Deficit: 92.3 Billion Yen
Japan's June Trade Balance Deficit: 135.2 Billion Yen
Japan's July Economic Watch Survey Current Situation Index: 45.7
Japan's July Economic Watchers Outlook Index: 45.8

Focus:

Thursday
Japan's July PPI (07:50)
Japan's July Machinery Orders (14:00)

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