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USD/JPY Analysis: USDJPY Surges, Postponement of US Stimulus Talks

USD/JPY Analysis:

  • President Trump returns to the White House and advises negotiators to walk away from stimulus talks until after the US presidential election
  • USD/JPY surges but faces near term challenges for a continued bullish move
  • IG Client Sentiment reveals a mixed trading environment even though sentiment tipped slightly to the short side for the first time since early June
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US Stimulus Talks Postponed till After the Election

This week, President Trump made his return to the White House and wasted no time to once again appear on the top story for many news outlets as he advised his negotiators to walk away from talks regarding further stimulus until after the election.

This latest development suggests that monetary and fiscal policy may not be fully aligned as news of Trumps decision came just hours after Fed Chair, Jerome Powell warned that the economy could see “tragic” outcomes without robust government support.

Revelations like this may hold more sway on the markets as the US prepares to hold elections next month – learn how this presidential election may prove anything but typical for the US dollar.

Event Risk on the Horizon

Scheduled event risk remains relatively quiet this week apart from a number of central bankers speeches throughout the week. Tomorrow, Bank of Japan Governor, Kuroda is scheduled to speak, the US vice presidential debate takes place and the initial jobless claims numbers are released.

Central Banks have the ability to impact major financial markets. Find out why in our FX Trader’s Guide to Central Banks.

DailyFX economic calendar

For all market-moving data releases and events see the DailyFX Economic Calendar

USD/JPY Surges: Key Technical Levels

The markets seem to have responded more favorably to the return of president trump than to the recent news of the postponement of stimulus talks. The latest surge has propelled the pair above the July/August descending trendline mentioned in our previous report where a break and close above the trendline may present the start of a continued move higher.

However, a near term area of confluence around the 106.20 level (circled in yellow) poses an immediate challenge to a bullish continuation as the 100 exponential moving average (EMA), the red line, currently rests on the 106.20 level. A close above 106.20 and the 100 EMA may see price advance higher to the upper end of the medium term range (shown in blue), before 107.50 and 107.80 become the next levels of resistance.

Should bullish momentum fade and price remain below the descending trendline, this may indicate a reluctance to breakout of the longer term down trend – identified by multiple lower highs observed since June – and may open the door to lower prices. Initial support comes in at 105.35 before the psychological round number of 105.00 becomes the next level of support. Further declines would see 104.80 as the next level of support before retesting the September low.

USD/JPY Daily Chart with Key Technical Levels

USD/JPY Daily Chart showing technical levels

Chart prepared by Richard Snow, IG

USD/JPY Client Sentiment Data Shows Uncertain Trading Environment

USD/JPY Client Sentiment

USD/JPY Client Sentiment Data:

  • USD/JPY: Retail trader data shows 50.76% of traders are net-long with the ratio of traders long to short at 1.03 to 1.
  • We typically take a contrarian view to crowd sentiment, and the fact traders are net-long would usually suggest USD/JPY prices may fall.

Interpretation of the Data:

  • The number of traders net-long is 6.09% higher than yesterday and 1.04% higher from last week, while the number of traders net-short is 5.80% lower than yesterday and 36.07% higher from last week.
  • The combination of current sentiment (not showing a substantial imbalance in either direction) and recent changes provides us with a mixed USD/JPY trading bias.

— Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnowFX