USD/JPY: the pair may continue recovery _04/07/2016

Trading recommendations

Buy in the market. Stop Loss 102.30. Take-Profit 103.10, 103.70, 104.30, 105.60, 106.50, 107.20

Sell ​​Stop 102.30. Stop Loss 102.70. Take-Profit 101.90, 101.30, 101.00, 100.50, 100.00, 99.50


Technical analysis

After UK residents voted for withdrawal from the EU, which led investors to doubt the stability of the financial and trade markets in Europe, the yen has grown significantly in the currency market. The US dollar fell against the yen to a mark of 99.00, its lowest level since November 2013.

The pair then rebounded and is currently trading near the 103.00 mark.

However, with decreasing concerns about the UK out of the EU and on the eve of the meeting of the Bank of Japan (28-29 July), at which it is expected that the Bank of Japan might soften its monetary policy, USD / JPY pair has stabilized in the range between levels of 101.00 (lows 2013-2014), 103.70 (EMA144 on the monthly chart).

Indicators OsMA and Stochastic on the 4-hour, daily, weekly charts are beginning to unfold in long positions.

From a technical point of view, is likely to continue upward correction to resistance levels 103.70, 104.30 (EMA200 monthly chart), 105.60 (EMA200 on 4-hour chart), 106.50 (EMA50 and the upper line of the descending channel on the daily chart), 107.20 (Fibonacci level 23, 6% correction to reduce vapors from June 2015 with the level of 125.65).

Further dynamics of the pair will be connected both to the actions and comments of the monetary authorities in Japan and the US, as well as the level of addiction investors to buy riskier assets and optimism on global markets.

As a funding currency, along with the euro, and a safe haven, the Japanese yen movement dynamics very sensitive to fundamental factors.

Support levels: 101.50, 101.00, 100.00, 99.00

Resistance Levels: 103.70, 104.30, 105.60, 106.50, 107.20


Overview and Dynamics

As concerns in the background extinction Brexit, for the dynamics of the pair USD / JPY to the fore other fundamental factors such as the monetary policy of the central banks of Japan and the United States.

In Japan, there is a problem with the base inflation. According to almost all indicators, inflation in Japan is significantly below 2%, and the inflation expectations of companies and households in recent months continued to decline.

It is highly probable that the Bank of Japan will make further easing of monetary policy at the next meeting on 28-29 July. Otherwise, according to many economists, the pair USD / JPY may fall below 100, and the Nikkei to fall below 15,000, which will be a serious test for the financial market, as well as Japan's exporters, in view of the appreciation of the yen.

According to some projections, the Bank of Japan will increase the purchase of the assets of up to 1 trillion yen (9.7 billion US dollars) a year, along with the increase of purchases of government bonds and Japanese real estate investment trusts at 67%.

It is also likely that the Bank of Japan lowered its key interest rate to 0.3% from its current level of 0.1%.

The basis for active buying of the yen is mainly a demand for it as a safe haven against the backdrop of economic uncertainty in the world.

Softer forecast of further increase in US interest rates does not mean at all that the Fed refuses to monetary tightening. In the long-term US interest rates or not at all will be changed or will be raised. In Japan, on the contrary it is more likely that the Bank of Japan has strongly soften its monetary policy.

Thus, in the medium term, the pair USD / JPY will be more inclined to stabilization and growth, rather than to an even deeper fall.