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USD/JPY : Breakout Might Extend

(Tue, 12 May 2020). US Dollar gains in mixed session for global stocks, Yen weakens. Tech stocks diverged with industrial shares, AUD and NZD fell. USD/JPY may extend rally after break above bullish chart pattern.


US DOLLAR GAINS AS JAPANESE YEN SINKS IN MIXED DAY FOR GLOBAL EQUITIES
The haven-linked US Dollar had a rosy session to start off this week as sentiment struggled in directionless trade. It began on an upbeat during the Asia Pacific trading session as the People’s Bank of China (PBOC) hinted at further monetary stimulus. This also sapped the appeal of the anti-risk Japanese Yen. However, the European session struggled to find follow-through as the Euro Stoxx 50 closed -0.84%.

There was a resurgence in risk appetite during the North American session, but that was only enough to bring the S&P 500 to a flat day. Most of the gains in equities were derived from health care and information technology stocks as financial and energy shares weighed on indexes. There was a notable disparity between the tech-heavy Nasdaq Composite (+0.78%) and with the Dow Jones Industrial Average (-0.45%).

To that end, investors may be parking their capital into sectors that could be perceived to fare better off in a work-from-home environment. The sentiment-linked Australian and New Zealand Dollars underperformed, struggling to capitalize on the late-day recovery in risk appetite. The liquidity advantage of the Greenback relative to the Yen may have been part of why USD/JPY soared over the past 24 hours in relation with equities.


TUESDAY’S ASIA PACIFIC TRADING SESSION
Asia Pacific equities may be heading for a mixed start to the day. Chinese inflation data is up but that may not yield a significant reaction from markets if the PBOC is aiming for more stimulus already. Thus a higher-than-expected print may not inspire much lasting follow-through for the Australian Dollar. The AUD is generally the market’s often-favored liquid China proxy. As such, it could focus on broad sentiment instead.


JAPANESE YEN TECHNICAL ANALYSIS
USD/JPY may be on the verge of extending gains after prices broke above a Falling Wedge over the past 24 hours. This is a bullish chart pattern outlined on the 4-hour chart below. The push through descending resistance appears to have been confirmed as prices attempt to rise towards the next technical barrier around 108.08. Positive RSI divergence also preceded the turn higher, a sign of fading downside momentum.

 

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