US dollar wilts against Japanese yen
The US dollar continues to look very soft against the Japanese yen, as short-term rallies continue to fade. Ultimately, the US dollar is being beaten up due to a change in the Federal Reserve’s attitude. We are now looking very likely to see interest rate cuts later in this year. This market has broken down significant support, so it’s obvious that we are in a very bearish move.
The importance of 61.8%
The 61.8% Fibonacci retracement level is of an area that attracts a lot of attention, as it is considered to be the “golden ratio.” Typically, those areas attract a lot of buyers, and a lot of algorithms will be fired off in that area. With that being the case, the fact that we are below that level suggests to me that there should be continued selling pressure as the “line in the sand” has been violated.
Beyond that, we have not only broken below there on the Thursday candlestick with a very negative candle, we have turned around to try to recover those losses only to fall again. It looks as if in early New York trading we are doing the same thing this week. Therefore the evidence that this pair should continue to go lower is very strong.
Geopolitical concerns
The geopolitical concerns around the world will continue to favor the Japanese yen. Although the US dollar is considered to be a safety currency, there is almost no “safer currency” than the Japanese yen. Ultimately, this is compounded by the fact that the Federal Reserve is stepping away from its hawkish stance, so, therefore, it makes sense that we continue to go lower.
We have a lot of issues when it comes to the US/China trade situation, so it’s very likely that there will be a concern when it comes to global growth, and that weighs upon this. Beyond that, we have the situation between the Americans and the Iranians, and lots of concerns when it comes to the European Union. There are far too many minefields out there to navigate to believe that this pair is going to suddenly shoot straight up in the air.
The Bottom Line
Ultimately, the market looks as if it will wipe out the entire move to the upside and that opens the door to pricing as low as the ¥105 level, which is the beginning of that move, which is something that we typically will see after the 61.8% Fibonacci retracement level is wiped out.
However, there is always the alternate scenario and in this case, it is found near the ¥108.75 level. If we can break above there, then the market will probably recover towards the ¥109.70 level, maybe even the ¥110 level. That being said, the chance of that happening is very little unless we get good news out of the G 20 later this week, as all eyes will be on US/China in the way they deal with these other. There has not been much in the way of good news lately.