The USD/JPY's long-term downtrend kicked in much quicker than we anticipated. The psychological 90 level didn't put up much of a fight, certainly a negative technical sign. Investors continued to snatch up the Yen after the BoJ confirmed that it may be less inclined to intervene in FX markets than the previous administration. The psychological plays by the BoJ and DPJ are having a profound impact on currency markets, driving down the USD/JPY towards previous 2009 and 2008 lows. Hence, the USD/JPY is flirting with historical levels once again. A compromise of December 2008 lows would knock the currency pair into levels not witnessed in over a decade.
The saving grace for the USD/JPY over the immediate-term would be stronger than expected industrial production and TMI data later this week. Strong Japanese economic data could help buoy the USD/JPY for the time being and allow the currency pair to regain its footing. However, we notice a cool down in global economic data. The dip in global econ data combined with an extraordinarily strong Yen has likely hindered Japan's economic recovery since the economy is highly reliant on exports and manufacturing. Disappointing Durable Goods orders from the U.S. last Friday is certainly a cause for concern. More weak consumption data out of the U.S. tomorrow could place additional downward pressure on the USD/JPY. Investors will also be keeping a close eye on China's Manufacturing PMI release on Wednesday. China has been the engine of the global economic recovery. A slowdown in Japan's #1 trading partner would likely accelerate the USD/JPY's present downturn.
Technically speaking, we have little reason to be positive on the USD/JPY trend-wise. The currency pair continues to travel south from all of our note-worthy uptrend lines. The only technicals working in the USD/JPY's favor right now are intraday and January 2009 lows. However, we did previously note that the 88.50-90 level should prove to be a reliable supportive trading range. Therefore, we wouldn't be surprised to see the USD/JPY hang in this area over the next 24-48 hours. On the other hand, traders should remain on their toes since the FX markets are very dynamic right now. We've seen an equally negative deterioration in the GBP/USD, which is positively correlated with the USD/JPY. The question becomes whether U.S. equities and gold can keep their head above water. As for the topside, the USD/JPY faces numerous downtrend lines along with the highly psychological 90 level. Therefore, the USD/JPY has quite a few large obstacles to overcome to the topside.
Present Price: 89.39
Resistances: 89.42, 89.80, 90.03, 90.32, 90.73, 90.96
Supports: 89.15, 88.89, 88.60, 88.25, 87.80
Psychological: 90, 2009 and 2008 lows