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Forex: Finding the yen tipping point

The overnight session has seen USDJPY push higher through resistance above 114.00 and stocks have risen for the fifth consecutive session. The question is to what extent this is being driven by sentiment vs. actual flows. As we mentioned yesterday, changes to pension rules in Japan have been long expected, so should not have come as a surprise. But USDJPY does start to look a little more vulnerable around these levels, just purely from a momentum perspective. The 14 day RSI is once again above the 70 level, which in essence makes a correction that little bit more likely. In the background have been further comments from BoJ governor Kuroda overnight, in which he repeated that he saw no limit to the measures the central bank could take to end deflation. In the wider picture, we’ve seen the dollar gaining ground into the European session, more so vs. sterling which has pushed cable back below the 1.60 level and also pulled EURUSD back towards the 1.25 area. Putting up some resistance has been the kiwi, helped by jobs data showing stronger than expected employment growth in Q3.

For today, final readings of what were disappointing PMI readings for the Eurozone for October are seen early on. Thereafter, services PMI data for the UK is released at 09:30 GMT, with ADP employment data for the US at 13:15 GMT. No great surprise to see the Senate falling to the Republicans in US mid-terms, so two years of even greater political stalemate in the US will ensue. Note that Aussie jobs data is released overnight.

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