USD/JPY technicals support bullish continuation - Scotiabank

Domestic developments and the broader market tone are both providing for JPY weakness as market participants respond to a material shift in expectations surrounding Japan’s policy outlook, said Eric Theoret, Strategist at Scotiabank.

Key Quotes

“JPY is down, weakening for the third session in four with a near-5% decline from Friday’s close. Domestic developments and the broader market tone are both providing for JPY weakness as market participants respond to a material shift in expectations surrounding Japan’s policy outlook—with a focus on both fiscal and monetary stimulus.”

“Fiscal details are set to be delivered by the end of July, and monetary developments remain a source of considerable speculation ahead of the BoJ’s July 29 policy decision. Fundamentals and sentiment have combined to provide for material JPY weakness this week, however both yield spreads and risk reversals have failed to carry their move into Thursday, suggesting that this most recent decline is being driven by an adjustment in positioning. Note that CFTC data show JPY as the largest held net long with a $7.8bn net position as of July 8.”

“USDJPY short-term technicals: bullish—USDJPY has rallied to a fresh July high with a near full retracement of the bearish June 24 candle and its open at 106.16. Momentum signals are bullish and slow-moving DMI’s have provided confirmation. The 9 day MA appears poised to make a near-term break above the 21 day MA. We look to gains toward the 50 day MA at 106.35.”