The USD/JPY pulled back yesterday as Dollar weakened across the board and U.S. equities rallied once again. However, the USD/JPY has bottomed above September lows and is strengthening as the EUR/USD and gold move lower. Hence, USD/JPY's movements are clearly tied the currency pair's correlations. We expect this pattern to continue today until Japan releases its Trade Balance data late Wednesday EST. We believe Japan's Trade Balance will come in stronger than expected since China's TEU data continues to grow with the country's economy performing well. Additionally, recent data from the U.S. has been stronger than expected; indicating demand for Japanese exports likely improved since the last time we received Trade Balance data. An outperformance of Japan's Trade Balance data would likely place further downward pressure on the USD/JPY, corresponding with our expectations continues strength in U.S. equities over the near-term.
However, as we explained in our S&P futures commentary, the Shanghai Composite Index (SCI) and Baltic Dry Index (BDI) are performing poorly. While China's demand for commodities doesn't necessary impact its hunger for Japanese exports, any fundamental slowdown in China could seriously damage Japan's present economic stabilization. Strong growth in China has helped Japan's economy a lot considering American consumption continues to decline. While we don't expect present setbacks in China to impact Japan's Trade Balance release today, investors should keep a close eye on the performance of the SCI and BDI over the near-term.
In all, we maintain our negative outlook trend-wise on the USD/JPY. The currency pair should continue to perform poorly as long as the global economy improves. Since we have little reason to be bearish on the S&P futures over the near-term, it seems the USD/JPY's downward trajectory is intact. Furthermore, the DPJ has voiced a more conservative fiscal policy which would likely favor a stronger Yen. Lastly, medium-term momentum is clearly in favor of the downtrend considering all of the technical supports and uptrend lines the USD/JPY has dropped through over the past month and a half. Technically speaking, the USD/JPY faces several barriers to the topside, including all five of our present downtrend lines along with 9/21 highs. Therefore, even though the USD/JPY may strengthen further over the immediate-term, the currency pair has a long road ahead to the north. As for the downside, we spot technical cushions in the form of our 1st and 2nd tier uptrend lines along with 9/21 lows, 9/16 lows, and of course the highly psychological 90 level. Therefore, the USD/JPY's topside appears to have more room than the currency pair's downside, favoring a positive performance for the time being.
Present Price: 91.50
Resistances: 91.62, 91.80, 91.91, 92.18, 92.39
Supports: 91.42, 91.22, 91.09, 90.88, 90.69, 90.44