USD/JPY: where’s the upside limit?
By Elizaveta Belugina
During the past week the buyers managed to push USD/JPY to the psychologically important level of 120 yen. Positive expectations about the US economy were the main driver for this pair, and the bulls have decisively put aside the news that Japan’s credit rating got lowered by Moody’s.
We now have to look further and further away into the past in order to determine support & resistance levels. On the upside the next important levels are located at 121.37 (Dec. 2005 high), 122.00 and 124.14 (2007 high). Support is located in the 119.40/88 area (Feb. and Oct. 2006 highs, 61.8% Fibo of the decline from the 1998 peak), 119.00 and 117.30.
The next week will be the last ahead of the Japanese parliamentary elections which will take place on Sunday, Dec. 14. Pay attention to the release of the revised Japanese Q3 data which is due early on Monday – this release may influence the mood of the Japanese voters. For now Abe’s party is far ahead of its rivals in the opinion polls. According to the expectations, it will manage to keep two thirds of the seats in the lower house of Parliament – for now this is the main scenario and this scenario is certainly positive for USD/JPY.
As a result, we can expect USD/JPY to continue growth, though less fast than in the recent weeks. The overbought nature of the pair is unlikely to construct a big obstacle for the bulls, but Japanese officials may try to slow down yen’s depreciations with their comments. According to Bloomberg, corporate bankruptcies in Japan due to the weak yen jumped last month to the most since January 2013. In addition, many large players would probably like to take profit. At the same time, we think that big corrections down are unlikely and that USD/JPY has chance to test the 124 handle.