Bottom line: USDJPY might be looking to resume its rally towards 111.75 levels over the next several weeks. The currency seems to have found support around 104.20 handle and is holding well above that. Bulls are looking poised to stay in control.

 Fundamental Outlook:

NZDUSD dropped by over -0.50% yesterday after hitting 0.6651 highs during the day. The exchange rate had dropped sharply after the FOMC minutes as US Dollar gained across the board. The Fed might be inclined to keep interest rates unchanged on September 16, 2020 meet. The US Dollar Index finally gained around +0.75% closing at 93.00 handle yesterday.

SPX500 futures managed to touch 3399.8 yesterday before reversing sharply. Please note that futures had hit 3398.2 on February 20, 2020 before the collapse. As we prepare to publish, the indice is trading around 3359.00 and might continue to drift lower. It might be too early to confirm but this could be the beginning of potential risk aversion, going forward.

USDJPY had managed to gain over +0.50%, closing above the 106.00 handle yesterday. The exchange rate might continue to gain over the next several trading sessions as US Dollar might gain significantly as risk assets sell off. Global equity markets might remain vulnerable for another collapse, going forward.

Technical Analysis:

USDJPY might have carved another potential higher low around 105.10 levels yesterday. Bulls have managed to produce an engulfing bullish candlestick pattern as well, which could be a potential turning point, going forward. Looking higher towards 111.75 levels.

USDJPY had dropped to 101.18 levels in March this year. The currency was able to produce a sharp rally towards 111.75 mark, thereafter. Please note the subsequent corrective drop has found support around 104.20 levels, which is also fibonacci 0.618 retracement.

Ideally, USDJPY should hold above 104.20 levels going forward. Furthermore, the rally should extend beyond 111.75 levels, before turning lower again. Bulls would be poised to remain in control from here, and carve a series of higher highs and higher lows.

Most trader might be willing to hold long positions initiated around 104.50 levels, with protective stops just below 104.20 and projected targets towards 111.75 at least. Only a drop below 104.20 would change the bullish structure.

Prepared by

Harsh Japee, Technical Analyst.

USDJPY Chart

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