📝Don't Expect USD/JPY Rally to Extend: Saxo Bank

USDJPY has backed up above local resistance near 144.00 after the dovish Bank of Japan surprise overnight, which was perhaps doubly surprising given the geopolitical backdrop that has been behind a considerable dose of the JPY’s gains against the greenback as most, including this author, believe that Japan’s political leadership would be happy to see the JPY on a strengthening path against the US dollar while trade negotiations with the US are ongoing. We have taken a stab recently at identifying resistance levels, with 145.00 the first significant line in the sand, followed by the 146.50 prior major low from March. Given falling US 10-year yields that traditionally correlate quite closely with the USDJPY exchange rate and given the collapsing oil prices that have implications for inflation and therefore bond yields and Fed easing, I still expect this rally to fade sooner rather than later. A quick reversal here well back below 144.00, perhaps after a soft US jobs report tomorrow, would help the bearish case. In any case, today’s 144.74 high up to 146.50 is the last gasp short-term resistance zone for the bears, with 150.00-151.62 probably the more existential longer term resistance.

GBPJPY is set to turn to a positive trend on today close if it fails to sell off again, but the JPY crosses aren’t really in bull mode yet. As noted in my Tuesday update, EURJPY is an interesting one to watch in the 164-165 zone, with a massive level at the twice touched 164.20. In today’s trade, the quick erasing of the EURUSD dip is a near-term boost for the bulls, that this higher support area near 1.1300 will hold. - Saxo Bank