JPY Falls As Investor Confidence Swings Bullish

Following the restoration of risk appetite, the JPY fell sharply, while the dollar declined as well. With a robust gain on US indexes overnight, investor confidence shifted dramatically. In Asia, the Nikkei has recovered a 30k handle, while other Asian markets are weak. Commodity currencies, on the other hand, have made significant gains. The JPY is now the currency that has performed the worst this week, followed by the Sterling. The Swiss Franc is the most powerful currency, followed by the Canadian Dollar.

However, the situation could alter by the end of the week. Japan’s September manufacturing purchasing managers’ index fell to 51.2 from 52.7, which was lower than the expected 52.5. The PMI service industry index rose from 42.9 to 47.4. The PMI composite index also rose from 45.5 to 47.7.

Usamah Bhatti, an economist at IHS Markit, said: “The rate of decline is slower than in August because the contraction of the larger service industry has slowed significantly… Input prices in the entire private sector have risen at the fastest rate in 13 years. In the case of supply shortages, companies attribute the increase to the increase in raw materials, freight and staff costs.”

Also from Japan, the core CPI (all items excluding fresh food) in August increased from -0.2% to 0.0% year-on-year, in line with expectations. The overall CPI (all items) fell from -0.3% year-on-year to -0.4%. CPI core-core (all items except fresh food and energy) increased from -0.6% year-on-year to -0.5%.

JPY: Break Over the USD/JPY at 112.40 May Indicate Upward Trend

USD/JPY has staged a robust surge higher as a result of repeated successful defense of crucial price support at 109.12/11 and then a positive “outside day.” Analysts expect a break above the August high of 110.81 for a challenge of long-term resistance, which begins around 111.66 and extends up to 112.40.

As Us yields having fulfilled near-term supports and are likely to increase higher, analysts expect a break over the August high of 110.81 to add more momentum to the rally and set the stage for a test of long-term resistance, which begins at 111.66 and extends to 112.40.

While the 112.40 resistance should be respected, a break would show the completion of a much more important and broad base, signaling a more sustainable change of trend higher. Initial support comes in at 110.25, with the 55-day average and recent low at 109.90/76 ideally holding to maintain the immediate risk higher.