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25 Apr 2016
Yen: USD technical tone improved, target 112.30 - BBH
Analysts at Brown Brothers Harriman explained the currencies that the dollar did gain against last week is important, and its broader technical tone improved.
Key Quotes:
"The US Dollar Index rose for the second consecutive week, something not seen for two months. We have been tracking the widening of interest rate spreads between the US and Japan and the US and Germany. We have been looking for some technical evidence that the dollar's downtrend over these past several months is ending, which is what the price action appeared to provide last week.
The dollar recorded its best week against the yen since October 2014, rising roughly 2.6%. The greenback began the week retesting the JPY107.70 lows in the immediate reaction to the failure of OPEC and non-OPEC countries to agree on a freeze in output. However, the dollar bounced smartly and within 48 hours was testing the JPY110 area.
It took reports before the weekend that the BOJ may consider changing a negative interest rate on loans (not just on some deposits) to extend the short squeeze through JPY111.45, which matches the 61.8% retracement objective of the decline since March 29, to a high near JPY111.80. This was particularly noteworthy because of the weakness in US equities that often corresponds with a stronger not weaker yen. Our next target is JPY112.30. The dollar finished the week above its 20-day moving average (~JPY110.20) for the first time in nearly a month. The five-day average will likely cross above the 20-day average early next week.
The wide interest rate differential between the US and Japan make it costly to be long yen without momentum. Momentum and trend followers appear heavily represented in the futures market, and they have been caught the wrong way. This may see the tone shift from selling dollar rallies to buy dips."
Key Quotes:
"The US Dollar Index rose for the second consecutive week, something not seen for two months. We have been tracking the widening of interest rate spreads between the US and Japan and the US and Germany. We have been looking for some technical evidence that the dollar's downtrend over these past several months is ending, which is what the price action appeared to provide last week.
The dollar recorded its best week against the yen since October 2014, rising roughly 2.6%. The greenback began the week retesting the JPY107.70 lows in the immediate reaction to the failure of OPEC and non-OPEC countries to agree on a freeze in output. However, the dollar bounced smartly and within 48 hours was testing the JPY110 area.
It took reports before the weekend that the BOJ may consider changing a negative interest rate on loans (not just on some deposits) to extend the short squeeze through JPY111.45, which matches the 61.8% retracement objective of the decline since March 29, to a high near JPY111.80. This was particularly noteworthy because of the weakness in US equities that often corresponds with a stronger not weaker yen. Our next target is JPY112.30. The dollar finished the week above its 20-day moving average (~JPY110.20) for the first time in nearly a month. The five-day average will likely cross above the 20-day average early next week.
The wide interest rate differential between the US and Japan make it costly to be long yen without momentum. Momentum and trend followers appear heavily represented in the futures market, and they have been caught the wrong way. This may see the tone shift from selling dollar rallies to buy dips."