Currency Analyst since 2010

USD/JPY with Mark Jensen

   By Mark Jensen

USD/JPY has a pretty volatile Monday: the pair spiked up to 117.05, got rejected there, fell to 115.45, got support there and returned above 116.

Japan fell into the recession: this was something the market didn’t expect. Now everyone’s certain that Prime Minister Abe will call a snap election and delay the sales tax hike – a decline in GDP is a perfect excuse for that. Moreover, it doesn’t seem like Japanese government has other options: it’s clear that tax hikes can be fatal for the fragile economy.

The problem for Abe is that although his Liberal Democratic Party is still expected to win the elections (there are no real rivals among the opposition parties), it will lose some supporters because of the current economic problems.

I very much like what BOA Merrill Lynch says about this: “USD/JPY rise to the 116 and 117 levels was based on a comfortable LDP election win, so that scenario is coming under review.”

I look at the H4 chart and see that the pair desperately needs correction towards 114.00. Yet, Abe may announce the tax delay anytime (perhaps at his press conference on Tuesday), and USD/JPY will spike to 118.00 on the news. Moreover, we have the Bank of Japan’s meeting on Wednesday – the central bank may hint at more monetary easing ahead.

Taking into account all the risks, I’ll be opening small longs in USD/JPY above 115 later today with take profit at 117.90: longs because the fundamental says that a reaction up is possible, small because the pair is so very much overbought.

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