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USD/JPY: capped at 111.80, risks ahead could be a spanner in the works

2018-8-30 11:25:04Market Analysis
USD/JPY: capped at 111.80, risks ahead could be a spanner in the works

The yen was sold off with a mixed risk appetite, where on one side of the coin, trade progress, positive Brexit headlines all went towards higher equities in North America trade, but on the other side of the coin, EM risk was rearing its ugly head again and liquidity issues could be a problem down the line as the Fed is set on raising interest rates. The haven yen could pick up a bid if the US adds tariffs on $200 of China exports. Also, eyes on the EMs for potential safe-haven bids in the yen -(The Argentina peso collapsing as traders figure that the Fed's path of rate hikes will continue after all and into 2019, intensifying offshore USD liquidity squeeze). 

US data putting on the liquidity squeeze 


The Q2 gross domestic product that was arriving at 4.2% as an annualized figure, beating the estimates that matched the initial reading at 4.1 helped kick off the day in a positive light as this data was showing the economy at the fastest pace of expansion in almost four years and following Tuesday's consumer confidence that was arriving at its highest level since October 2000. However, the DXY was trading in a range of between 94.93 to 94.53 and closing nearer to the lows. 

USD/JPY levels


Valeria Bednarik, chief analyst at FXStreet explained that the pair settled not far below a daily high of 111.82, not far away from the monthly one, at 112.14. "From a technical point of view, the 4 hours chart shows that it stands well above its 100 and 200 SMA, both running parallel and with the shortest below the larger, maintaining a neutral stance. Technical indicators, however, have advanced within positive territory, now losing their positive momentum but holding at daily highs, leaning the scale toward the upside as long as the price holds now above the 111.40/50 price zone."