USDJPY
The USDJPY is up for the third straight day as investors react to the relatively strong dollar. The pair is trading at 105.10, which is the highest it has been since September 16. Still, analysts at Societe Generale believe that the pair’s upward trend is likely to lose steam and crumble to 100.
Last week, Japanese yen had one of its strongest weeks in months as traders reacted to the weaker dollar and the election of Yoshihide Suga as the prime minister. Investors believe that he will continue with the previous policies that were advocated by Shinzo Abe. These include building a close relationship with the United States and attempting to build a relationship with China, Japan’s biggest trading partner.
The USDJPY pair is also reacting to relatively weak flash manufacturing and services PMI numbers. According to Markit, the country’s manufacturing PMI rose to 47.3 in September from the previous 47.2. Although that was a small increase, it is below 50, which is a signal that the sector is still ailing. The same is true for the country’s services sector. The PMI increased from 45.0 to 45.6 in September.
In an interview with CNBC, an analyst at Societe Generale, said that the pair will drop to 100. That would be the lowest it has been since 2017. He said:
“I think when you look at … the overall trajectory of where it should go, (the dollar-yen’s) long-term fair value’s closer to a hundred. That’s been our view for quite some time.”
However, analysts at UOB remain unconvinced. They believe that the USDJPY could see some gains in the near term. They wrote:
“While 105.20 is still intact, the rapid loss in momentum indicates that the negative phase has run its course. The current movement is viewed as the early stages of a correction phase. From here, USD could edge higher but any advance is viewed as part of 104.25/105.75 range (for now, a sustained rise above 105.75 is not expected).”
The daily chart shows that the USDJPY formed a bullish hammer pattern on Monday when it fell to the March low of 104.00. The price has pared back some of those losses but is still below the 20-day weighted moving average. Also, the pair seems to be forming a bearish descending triangle pattern.
Therefore, there are signs that the downward trend will resume as bears attempt to move below the support at 104.0. On the flip side, a move above the resistance at 106.00 will invalidate the trend.
