UDJPY: 105.00 on the cards

USDJPY is coming under some downward pressure today after hitting a high of 103.40. This is not unusual as the daily relative strength index is testing 70 and is close to overbought territory after a strong rally in recent weeks.

We are approaching a key resistance zone between 103.50 (rumoured barrier option level) and 103.75 – the high from 22nd May. This could prove to be sticky and may account for today’s pullback.

Looking for a fundamental driver:

Economic data is thin on the ground in the US session today, so we could drift in a short term range between 102.60 (a resting zone post the NFP print last Friday) and 103.40 (Tuesday’s high). To get us over the 103.50-75 resistance zone we may need a fundamental driver. Some key fundamental events to watch out for in this pair in the coming days include:

Thursday (12th Dec): US retail sales for November and initial jobless claims – the market may expect a big number post Black Friday, so a data miss could weigh on the USD.

Friday (13th Dec): US producer price data and Empire manufacturing for December. Inflation data is being watched closely, if we see prices pick up (albeit from low levels) then it could support the USD.

Sunday (15th Dec): Japan’s key Tenkan index for Q4. This is a bit like a PMI on steroids and is a key barometer of the important Japanese manufacturing sector. Any weakness could hit the yen hard as the market may expect the BOJ to step in with more liquidity if this feeds into weak economic growth.

Wednesday (18th Dec): FOMC decision. Bernanke’s penultimate meeting as Governor, to taper, or not to taper, that is the question…

Technical view:

A close above the 103.75 May high is a very bullish development, which could suggest further acceleration to critical resistance at 105.30, the 61.8% Fib retracement of the June 2007-Oct 2011 bear trade. Short term support lies at 102.50 – Tenkan line on the daily cloud – and then 101.65 – the low from 5th Dec.

Source: Forex.com

10.12.2013