Is USD/JPY Headed for 105?

Is USD/JPY Headed for 105?

Is USD/JPY Headed for 105?

It has been a terrible week for USD/JPY. In a span of 4 trading days the currency pair lost more than 450 pips and now everyone is asking if we’ll see 105 next. Friday’s extraordinarily weak non-farm payrolls report sent the U.S. dollar tumbling against all of the major currencies. We haven’t seen a move this strong for USD/JPY in more than a month. The 2 year Treasury yield dropped by the largest amount since March 2009 and Fed Fund futures are now only pricing in a 29% chance of tightening in July down from more than 50% pre-NFP. But a weaker dollar wasn’t the only reason for the currency pair’s terrible performance. Prime Minister Abe’s decision to delay the sales tax hike sent Japanese stocks and USD/JPY tumbling at the start of the week. The powerful combination of weak U.S. data and deteriorating Japanese fiscal finances could equate to greater losses for USD/JPY. Janet Yellen is speaking on Monday and the question now is how the terrible NFP report affects her bias. She was unabashedly hawkish last month when she said a rate hike might be appropriate in the coming months. If she repeats this view and she could because of the consistency of comments from U.S. policymakers and their overall view that the labor market is doing well, the dollar will rebound but don’t expect the greenback to recapture all of Friday’s moves.

Technically we have to turn to our monthly charts to get a sense of how significant the support levels in USD/JPY are. The currency pair has fallen hard but today’s move stopped right near the 38.2% Fibonacci retracement of the 2011 to 2015 rally. If this level is broken, the next area of support will be 105.55, which is the May low and 200-month SMA. On the upside, the key level of resistance is 108.20, a former support level.

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