USDJPY Set For First Close above 200 Day SMA This Year
Demand for the Greenback and the risk off tone following the election of Donald Trump as US President has seen the USD/JPY pair soar. The pair has gained nearly 200 pips over the last trading sessions in what could be a significant change of trend for the pair.
The result of the US election has fundamentally altered the landscape. The current ‘honeymoon period’ of the new president elect has so far driven strong dollar demand. Markets are currently pricing in an 84% chance of a rate rise in December.
A higher rate is seen as OK provided that the US government is accommodative in its monetary policy going forwards. The expectancy is for the Trump administration to potentially provide additional stimulus. If this is the case then higher growth figures would be expected to be on the cards.
On the other side of the trade the Yen has weakened. Markets are back on a ‘risk off’ tone. In this environment the Yen has seen reduced demand as traders are shifting to riskier assets.
A weaker Yen is however ideally wanted by the Bank of Japan. A strong Yen is bad for Japan businesses. The B of J has been concerned about this for some time, indeed it is not averse to taking action in the markets to weaken the currency when it deems it necessary. Previous interventions in the market have pushed the pair move as high as 125.80 (June 2015).
This has created a fundamental backdrop for the pair to soar.
The current move is potentially significant for a number of reasons. Firstly this level holds significance for the markets failure to break it previously. Psychologically this is a level to breach if the pair is to continue its momentum higher.
Furthermore the pair has also pushed beyond the 200 day SMA on the daily chart. This is the first time that it has traded above this level since the start of 2016. To find a time when the daily candle last closed above this level you have to go back even further to 17th December 2015.
Beyond this level there is near term resistance at 107.80. The level is also the 38.2% retracement of the fall from 121. This is nearly 90 pips away from the current price at the time of writing and so a good near term target. The SMA offers a good near term for a binary options trader looking to set their risk.
Beyond this a foreseeable midterm strategic approach could be to target resistance around 111.00 on the daily chart.