The USD/JPY is experiencing profit taking today after flying with U.S. equities and the Cable yesterday. The USD/JPY ignored the theme of a weaker Dollar, and instead opted to participate in the risk trade. Thursday's combination of positive Q3 earnings and a drop in weekly U.S. Unemployment Claims gave investors confidence to put their money back into riskier investment vehicles while sending the S&P futures towards 1100. An improvement in U.S. unemployment implies an increase in consumption, thereby increasing demand for Japanese exports. However, Thursday's risk trade is being undermined today by disappointing earnings from BofA and GE along with weaker than expected Prelim UoM Consumer Sentiment data. The USD/JPY's rally has topped out at what is now our 1st tier downtrend line after shying away from a test of 9/23 highs. The currency pair still faces multiple downtrend lines along with 9/23 and 9/25 highs. Therefore, quite a few technical barriers remain before the USD/JPY can establish a more substantial uptrend.
On a positive note, the USD/JPY is trading comfortably above 90 and the psychological level may now work in the currency pair's favor. Furthermore, the USD/JPY has set higher lows (10/7 and 10/14) while receiving encouraging buy-side volume during yesterday's session. The USD/JPY has created a little more breathing room in the form of multiple uptrend lines after dangling over the edge only a week ago. Despite the improvements in the USD/JPY's support system, the currency pair still has a lot to prove before to the topside due to the extent of its downturn. Our 2nd tier downtrend line would be a good place to start since it could extend the USD/JPY's rally towards 93.
Meanwhile, the BoJ will kick off the week by releasing its monetary policy meeting minutes combined with tertiary industry activity data early Monday (late Sunday EST). Investors will also receive public addresses from Fed Chairman Bernanke and BoE Governor King along with key China data on Wednesday. Therefore, volatility should remain at a heightened level through next week while investors continue to digest Q3 results.
Present Price: 90.70
Resistances: 90.99, 91.27, 91.44, 91.62, 91.85, 92.17
Supports: 90.70, 90.40, 90.15, 89.94, 89.69, 89.37