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USD/JPY Breaks Higher on Dollar Strength

USD/JPY Breaks Higher on Dollar Strength

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USD/JPY finally broke out on the upside as dollar strength and a jump in the oil price sets the yen on a path much lower.

The yen is back on the slide against the greenback, having lost ground in four of the last five days. At the time of writing, the dollar to yen exchange rate is 136.15, a two-week high, up almost 3.5 percent in the last weeks. As a result, the pair has hurdled several key technical resistance levels. Which could fire the starting pistol on a race to new lows for the yen.

Several factors conspired against the Japanese currency in yesterday’s session. The first of which, was a broadly positive data dump out of the United States.

Yesterday’s agenda began with the minutes of the most recent Federal Reserve Open Market Committee (FOMC) meeting. The Philadelphia Fed Manufacturing statistics and Initial jobless claims followed. While Existing Home sales wrapped up proceedings.

The FOMC minutes revealed that Fed members are sticking to their current hawkish stance. St. Louis Fed President Jim Bullard agreed, telling reporters that he is leaning toward backing a 75bp raise at the next meeting.

Initial jobless claims were 250k, which was below than the projected 265k and lower than the prior month’s 252k. While the August Philadelphia Fed Manufacturing Index was substantially higher than projected at 6.2.

As a result, the US dollar index jumped to 107.50 as the market came round to the idea that a fed pivot is looking less likely by the day. And if that wasn’t bad enough, Crude oil jumped 2.25 percent, which is likely to put more pressure on Japan’s widening trade deficit.

Japan Trade Balance

Earlier this week, Japan’s trade balance showed a deficit of -$1.4368 billion. The amount was lower than the consensus expert forecast of -$1.405 billion, but higher than the -$1.398 reported in June. Shockingly, this was the eleventh consecutive monthly trade deficit.

Furthermore, despite the weaker yen encouraging people and organizations to send money to Japan for products and services, the trade balance was last positive in July 2021. With that in mind, USD/JPY may soon be breaking new ground on the upside.

Dollar to Yen Outlook

The daily chart shows USD/JPY has cleared trend line resistance and the 50-Day Moving Average at 135.44 (green line). Furthermore, the pair has punched above the former August high.

With those resistance levels now in the rear-view, July’s multi-decade high of 138.38 is an achievable target. The bullish outlook remains as long as the pair stays above the 50-DMA. Therefore, a close below 135.44 negates the positive view.

USD/JPY Price Chart

Elliot Laybourne
Elliott is a former investment banker with a 20 year career in the city of London. During this time he held senior roles at ABN Amro, Societe Generale, Marex Financial and Natixis bank, specialising in commodity derivatives and options market-making. During this time, Elliott’s client list included Goldman Sachs, JP Morgan, Credit Suisse, Schroders Asset Management, and the Pennsylvania State Public School Employees Retirement System, amongst others. Today, he splits his time between Thailand and Dubai, from where he provides trading consultancy and business development services for family office and brokerage clientele.