USD/JPY: Testing waters through New York highs and above 38.2% Fibo retracement of Fed decline
- USD/JPY is testing the upside in Tokyo, with a pop at the open to print a fresh high within the reversion of yesterday's Fed-inspired drop.
- USD/JPY is above the 38.2% fino retracement of the Fed decline, 108.90, and is above 108.95 New York highs.
- USD/JPY is currently trading at 108.93 from a low of 108.78 in early Asia and a high of 108.97, so far.
The DXY regains 50% of the Fed-induced decline in the greenback, although the FOMC's dovish turn remained the focus overnight. As a result, the greenback was initially on the backfoot and US yields were extending their decline, with the US 10-year yield fell 4bp to 2.63%. The 2yr yields dropped from 2.51% to 2.47%. Looking ahead, Futures markets are now pricing no chance of any further Fed rate hikes in this cycle. There is just a 20% chance of a rate cut in December.
- China and U.S. trade talks summary and sound bites from two day discussions in Washington
Elsewhere, equities were ending the month on a high, although the DJIA was finding tough resistance marked by key confluences on the charts and dragged down (-0.2%) by a 8½% fall in DowDuPont after a profit warning based on weaker sales in a familiar culprit being China and also in Europe. Nevertheless, it completed its best performance for the month of January in decades.
- Forex today: Fed's after-glow leaves dollar heavy, resisted at 50% Fibo retracement of post FOMC statement decline
US data was mixed. Analysts at Westpac explained that US labour costs remain benign: "The Employment Cost Index rose 0.7% (consensus 0.8%) in Q4, underscoring the benign inflation backdrop despite a tight labour market. Wages and salaries (i.e. earnings excluding lumpy benefits such as health coverage and bonuses) rose a moderate 0.6%, 3.1%yr. The Chicago manufacturing purchasing managers index fell to 56.7 in Jan from 61.5 in Dec, taking business sentiment in the Midwest closer to the weaker readings posted nationwide in recent months."
- DJIA stuck at key resistance and confluence level, but enjoys best January since 1989
USD/JPY levels
Valeria Bednarik, Chief Analyst at FXStreet explained that the intraday bounce fell short of changing the bearish stance of the pair:
"In the 4 hours chart, it continues developing below its 100 and 200 SMA, with the shortest converging with a relevant Fibonacci level at 109.05, while technical indicators remain within negative levels, the Momentum gaining downward traction and the RSI directionless at around 39. The key support is 108.30, the 50% retracement of the 111.41/105.16 slump, with a break below it exposing 107.95, where the pair bottomed Jan 14."
- Support levels: 108.30 107.95 107.60
- Resistance levels: 109.05 109.40 109.75