FX Trading Idea – USD/JPY

Technical View
Price may have made a Double Bottom, if we disregard the long tail in the middle of these two bottoms. Price should be moving higher to test the previous high at 114.70 again. Price has been progressing higher. We have seen higher high with higher lower along the way and price is above the uptrending line. Last week, price moved above the recent high of 110.30. The breakout candlestick was a strong long green candlestick. The next resistance lies at 112.40 and if price can move above this point, it is likely to test the 114.70 high again. MACD is bullish with both its lines above the zero line. Stochastic is declining but could be turning up again after a bullish crossover.

Fundamental View
Interest rate usually determines the strength of a currency. A currency with a higher interest rate tends to be stronger than another currency with a lower interest rate. Currently the US dollar has an interest rate of 1.75% while the Japanese yen interest rate of 0.10%. There is a wide difference in interest rate between these 2 currencies and it favours the US dollar. The release of the recent FOMC’s meeting minutes showed that the Fed is in no hurry to lower interest rate. The big difference in interest rate is likely to remain till the end of the year.

Japan could see a technical recession but US’s GDP growth is still above 2%. The decline in Japan’s GDP was a result of drop in private consumption as a result of an implementation of a sales tax. Economic data in Japan are not looking good either. Corporate bankruptcies are up 16% year on year in Jan 2020. Merchandise trade balance is negative for the past 11 months. Machine tools order is down 27% year on year. The relative performance of the US economy is much better than Japan.

Japan auto industry suffers a parts shortage as a result of lockdown and extended holiday in China due to the coronavirus. Japan is close to the epicenter of the coronavirus as well. Trades with neighboring countries usually account for a large percentage of GDP. 30% of Japan export is to China and South Korea, the epicenter and the country with the largest number of cases outside China. Japan is likely to be weighed down by the coronavirus. It has also affected the Yen’s status as a safe haven.

Look to buy at 109.60 for 114.70 with stop below 108.10

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