August 3, 2021 14:43:55
With the Tokyo Olympics coming to end this week, we have not seen any major virus-related issues. Instead, the performance of the Japanese yen has recently been driven by the Chinese regulatory clampdown and record low real rates in the US.
Meanwhile, the yen (along with the Australian dollar for what it’s worth) remains the biggest short in the currency majors. This is a touch surprising considering how US interest rates have continued to drop which normally sees stronger interest in JPY.
Expected solid US jobs data released on Friday may bolster the recovery story and stabilise the dollar. This would potentially harm the yen but persistent concerns about the virus are keeping it bid so far this week.
USD/JPY breaking down
This major pair had been trading in fairly random fashion recently with no distinct trend. After topping out at 111.65 a month or so ago, the near-term bias was to the downside as prices struggled to push above the March and April highs again. This struggle to gain any foothold above here has seen bearish momentum pick up both on the MACD and daily RSI with the latter moving below 40. The 23.6% Fib level of the low to high moves of this year has acted as support but is now acting as resistance at 109.51. Ahead of this, the July low at 109.06 has been breached today signalling more potential downside to come.
Targets below include 108.75 and then the next (38.2%) Fib level at 108.19. Only a break above 109.82/77 would show that the current weakness has stabilised.
Falling oil hurting CAD/JPY
This week’s softer US and China data have pushed Brent prices lower towards $70. Oil is of course a big driver for CAD. In turn, CAD/JPY has broken down out of its recent range and through the 23.6% Fib level of the March 2020 low / June 2021 high at 87.08. The June low at 87.96 had capped prices before this, so bears can now aim for the recent low and April lows at 85.42/45 before the 200-day SMA at 84.92 and the next Fib level at 84.45. Prices need to get above yesterday’s high at 88.29 to turn the downtrend.
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