USDJPY Fails to Defend 110 Level, Implies Risk-Off Sentiment to Stay

May 27, 2019 | Axiory – The very important risk barometer – known as the USDJPY pair – declined notably over the last days and fell back below the important level of 110.00, which could imply further losses for stocks and other risk assets, such as oil or emerging markets currencies.

Why USDJPY Fails to Defend 110 Level?

As investors remain nervous due to the ongoing crisis between China and the USA, more and more traders start exiting their longs on riskier assets and keep asking questions later. It seems that the trade conflict between these two superpowers will last for some time, which might be further negative for stocks.

Moreover, US yields continue to plunge as well, with the 10-year yield dropping to 2.32%, the lowest since November 2018. Since capital is flowing into bonds (bond prices are going up, while yields are on the decline), this also means investors are positioning for further declines in risky assets. Thus, the USDJPY pair could be on the verge to break below this month’s lows at 109.00.

There are not many major US data on the agenda in this week and traders will pay attention to Thursday’s US preliminary GDP for the first quarter, which is seen slowing (although marginally) to 3.1% from 3.2% previously. The GDP price index is expected to accelerate from 0.6% to 1.7%.

On Friday, PCE indices will be released, along with personal consumption and income numbers, which could cause some volatility on the greenback.

USDJPY technical analysis

The technical analysis doesn’t look very positive either as the pair is quickly declining toward May’s lows near 109.00. If this level is taken out, the bearish trend would most likely be confirmed, with another target at 108.55, or possibly at 108.00.

The RSI hasn’t been oversold in a couple of days so the bearish pressure could resume now, if sentiment remains negative.

On the upside, the first notable resistance is seen at 109.70 and afterward at the psychological barrier of 110. The pair needs to return above this mark to negate the actual bearish pressure.

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