Japanese yen surges higher

Kate Leaman Kate Leaman

1 June 2019

JPY/USD

The Japanese yen enjoyed a lot of strength during the trading session on Friday, as the financial markets reacted to the announcement that President Trump is possibly going to be adding more tariffs to Mexico, expanding the trade war that has a lot of people concerned.

With a slowing global growth story, it makes sense that the Japanese yen will continue to go higher, as it is considered to be a safety currency. The USD/JPY pair got absolutely hammered during the Friday session after that announcement, coinciding with the stock markets falling apart. By the time the day ended, we were at the bottom of the overall range of the day, and sitting just above the vital ¥108 level.

Fear-based trade

This was a fear-based trade, plain and simple. Although the US dollar does enjoy certain amount of strength in these times, the reality is that the Japanese yen is considered to be the safest of them all. With that, the Japanese yen strengthened against just about every currency you can imagine, and the US dollar would have been no exception. This market does tend to move right along with the S&P 500, so this move made perfect sense. As traders worried about an expanding trade war, and perhaps yet another reason for slowing global growth, it makes sense that this happened.

The next likely move

usd/jpy chart

USD/JPY

While there could be a bit of a bounce for people looking for value, the reality is that when you close as low on the range as we did during the session on Friday, it almost always means that there will be an attempt to continue. This means that we will test the ¥108 level, an area that should be somewhat supportive. If that area gets broken through, the USD/JPY pair will more than likely go looking towards the ¥106 level next. This will more than likely coincide with some type of ugly move in the S&P 500.

Any rally at this point should be contained by the ¥109 level, so it’s not until we break above there that you can start think that perhaps the market is going to save itself. It looks very likely that we are going to see a lot of choppiness at this point in time, and with a decidedly bearish tone. Quite frankly, it’s not in less something changes between the US/China trade relations that we will see some type of bullish pressure overall as the list of reasons for financial concern continue to pile.

With this in mind, look for rallies that show signs of failure to take advantage of. That would be your most ideal trade. However, we may simply just continue to fall from here, which of course would be your signal to sell as well, but obviously if you can get a bit of a recovery, it gives you more momentum to the downside when it finally does break apart. As far as buying goes, I don’t think it’s very likely to happen anytime soon.


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