USD/JPY Taking on "An Increasingly Negative Outlook"

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The Dollar-Yen exchange rate dipped 0.42% yesterday and is quoted at 105.70 on Tuesday, leading analyst Richard Perry of Hantec Markets to forecast a challenge of 104.15 if 105.10 were to be breached.

USD weakness really took hold yesterday as the session wore on.

This drove a decisive bear candlestick into the close, pulling Dollar/Yen way below the 106.00 pivot. It now takes on an increasingly negative outlook within the 105.10/107.00 range of the past six weeks. A decisive close below 105.75 implies pressure on 105.10.

However, given a sharp deterioration in momentum indicators (with downside potential), a move back towards 104.15 would be the risk if 105.10 were to be breached now.

It will be interesting to see the reaction of the bulls now. Previously throughout recent weeks, the market has been consistently gravitating around the 106.00 pivot, so today’s reaction to such a decisive negative session yesterday will be seen as a gauge.

We would see 105.75/106.00 as a near term resistance band now, and already this morning we see this is becoming a barrier. Resistance is mounting overhead and we can now add 106.30 to 106.50 and 107.00 as resistance.

Renewed positive risk appetite is hitting the dollar early this week. Positive newsflow of COVID vaccinations from AstraZeneca and Pfizer have helped to boost sentiment.

The dollar is still perceived as a safe haven and as such is coming under pressure once more.

This mood has been bolstered overnight, with the announcement of key Chinese data, with retail sales coming in ahead of expectation and back positive for the first time since the pandemic struck.

The sharp appreciation of the Chinese yuan is certainly a signal of renewing risk and pressure on the dollar. Although Treasury yields are broadly steady in front of the two-day FOMC meeting, there is a perception that the Fed will confirm the lower for longer mantra for interest rates.

This would lay further groundwork for a path of broad dollar weakening in the coming months. A dollar weakening is impacting across major forex pairs today, whilst gold and silver are also feeling the benefit.

UK unemployment data for July broadly comes in ahead of expectations even though unemployment has ticked up to 4.1%, although this will worsen in the coming months as the furlough scheme is wound down. Sterling has been supported by this data.

There are several major announcements to be aware of on the economic calendar today. The German ZEW Economic Sentiment at 1000BST is expected to slip slightly to +69.8 in September (down from the record high of 71.5 in August).

However, it is also worth watching out for the current conditions component which is expected to improve to -72.0 (from -81.3 last month).

The New York Fed Manufacturing index is expected to improve to +6.0 in September (after dropping back to +3.7 in August).

The US Industrial Production is expected to improve by +1.0% in the month of August (after growing by +3.0% in July) whilst Capacity Utilisation is expected to improve to 71.4% (from 70.6% in July).