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After driving USD/JPY to 11-month highs last week, investors took profits in what should have been a quiet trading day. However with US and Canadian markets closed, the thinner liquidity also created an opportunity for larger moves, which was what we saw in USD/JPY on Monday. The selling began at the European open and gained momentum when those unlucky U.S. traders who had to work on Columbus Day joined the market. They took USD/JPY below 113 by lunchtime, which was the London close and only eased up when European traders left their desks. Monday’s sell-off took USD/JPY to the 20-day SMA, which is the first level of support. If USD/JPY holds 112.80 then its back toward 114 for the pair but if this level breaks, the sell could extend to 112.
Fundamentally, nothing has changed in the U.S. economy along forex economic calendar. This week’s inflation reports are still expected to be strong and the Federal Reserve has one more rate hike this year. However the problems for China and Italy continue to grow, causing risk appetite to sour. Chinese stocks plunged 4% overnight, the yuan weakened and the US Treasury added salt to the wound by expressing their concern about China’s weakening currency, fueling speculation that they could label China a manipulator for the first time since 1994. With all of this in mind, we still think USD/JPY is headed above 115 and see Monday’s move as the first opportunity to initiate longs.
Fundamentally, nothing has changed in the U.S. economy along forex economic calendar. This week’s inflation reports are still expected to be strong and the Federal Reserve has one more rate hike this year. However the problems for China and Italy continue to grow, causing risk appetite to sour. Chinese stocks plunged 4% overnight, the yuan weakened and the US Treasury added salt to the wound by expressing their concern about China’s weakening currency, fueling speculation that they could label China a manipulator for the first time since 1994. With all of this in mind, we still think USD/JPY is headed above 115 and see Monday’s move as the first opportunity to initiate longs.
