Yen Higher Following Trade Surplus in June

JAPANESE YEN PRICE, CHARTS AND ANALYSIS:

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JAPANESE YEN BACKDROP

The Japanese Yen has experienced a renewed bout of weakness over the past 5 trading days or so with a tad bit of strength in the Asian session as a result of a positive trade surplus print. The recent yen weakness could just be a retracement following impressive gains for the Yen or signs of profit taking as well.

Currency Strength Chart Strongest: AUD Weakest: GBP

Source: FinancialJuice

The balance of trade data which indicated a surplus in Japan came in well above forecast, a positive sign for the Japanese economy. As the Bank of Japan (BoJ) outlined wage growth as a key aspect they are focusing on moving forward an increase in demand for Japanese goods should drive prices higher and lead to wage growth down the line. Just this morning we heard comments from PM Kishida who emphasized the need to ensure Japan makes a sustained exit from deflation and creates a society where wage hikes become a norm. I will be keeping an eye on wage growth numbers moving forward for signs of an improvement following today’s data.

For all market-moving economic releases and events, see the DailyFX Calendar

What must seem like an exhausted topic around a policy pivot from the BoJ continues to affect sentiment around the Yen. As mentioned previously a tweak to the YCC policy cannot be ruled out completely while FX intervention is likely to keep any Yen losses capped should we revisit previous highs on both EURJPY and USDJPY.

The Japanese Government did release some upgraded forecasts this morning as well with consumer inflation to hit 2.6% in current fiscal year, up from 1.7% seen in January and exceeding the BoJ’s 2% target. The Government also cut the economic growth forecast for the current year to 1.3% from a projected 1.5% in January, with inflation expected to dip below the BoJ target range in 2024, forecasted at 1.9%.

Tomorrow does bring the June inflation number out of Japan and could offer further insight into progress by the BoJ. The headline print is expected to accelerate back to 3.5% as the range between the 3.2%-3.5% mark remains stubborn. Inflation has seesawed in that range since February.

For all market-moving economic releases and events, see the DailyFX Calendar

PRICE ACTION AND POTENTIAL SETUPS

EUR/JPY

Analysis of EURJPY at present is tricky as we trade at levels last seen in 2008. The recent retracement in Yen pairs sees EURJPY nearing the previous highs around the 158.00 handle. Overall structure on the daily timeframe has shifted bearish with the current retracement now in the preferred Fib retracement zone between the 61.8% and 78.6% for bearish continuation.

At the moment the looming threat of intervention is likely to keep the Yen supported with any attempt to create a fresh YTD high likely to face significant selling pressure. A push lower from current prices could see the 50-day MA around the 153.00 handle finally come into play.

EUR/JPY Daily Chart

Source: TradingView, prepared by Zain Vawda

Key Levels to Keep an Eye On:

Support levels:

• 155.00 (psychological level)
• 153.00 (50-day MA)
• 151.62 (May swing high)

Resistance levels:

USD/JPY

USD/JPY Daily Chart

Source: TradingView, prepared by Zain Vawda

From a technical perspective, USD/JPY is currently trapped between the 100 and 200-day MA providing support and the 50-day MA providing resistance. We have also just seen a golden cross pattern as the 100-day MA crossed above the 200-day MA hinting at the potential for further upside. Following the selloff in the US Dollar last week we could get some profit taking and repositioning ahead of what could be a massive FOMC meeting next week.

Taking a look at the IG client sentiment data and we can see that retail traders are currently net SHORT (if only just) on USDJPY with 53% of traders holding short positions (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment meaning we could see USDJPY prices continue to rise following a short pullback which lines up with the printing of the golden cross pattern as well.

Key Levels to Keep an Eye On:

Support levels:

• 138.80
• 138.00
• 137.00 (100 and 200-Day MA)

Resistance levels:

• 140.50 (50-day MA)
• 141.38
• 142.10

— Written by Zain Vawda for DailyFX.com

Contact and follow Zain on Twitter: @zvawda