USDJPY Testing Support in Early Trade; Treasuries Limiting Upside Potential

by on May 19, 2014 10:06 am BST

Yen futures are higher as traders seek risk aversion to start the week off on geopolitical tensions in Ukraine escalating. S&P 500 E-mini futures are down nearly nine points during the London session, and the yen is seeing demand to two-month highs.

The safe-haven attributes of the Japanese yen are being exploited with the yield premium between the US 10-year treasury note and similar-maturity Japanese government bonds (JGBs) narrowed to a seventh-month low of 1.92 percent, bouncing from lows of 1.89 percent on May 15. “Demand for U.S. Treasuries will continue to be supported by risk aversion, limiting the upside in dollar-yen,” said Toshuya Tamauchi, a senior analyst at Ueda Harlow Ltd.

On the daily chart, the dollar-yen looks increasingly bearish as price action closes below the larger ascending trend line. Traders are testing current support at 101.31, as yen futures are up .17 percent but down from session highs.

If support breaks, price action will seek to test the dynamic support of the 200 EMA, which is currently at 100.75 before testing price action support at 100.45/50.

Momentum looks to be picking up. The RSI was able to break through the 40 level that has held up as a supporting level since early February. The ADX indicator is sloping upwards and supports momentum is favorable to the current trend.

Resistance will be found at the previous supporting trend line at 101.80 before seeing price action resistance, combined with the 20 EMA, near 101.90. There is a 50/72 EMA bearish crossover taking place that could accelerate a move downward, while 102.15 remains a secondary price action resistance level.

1D Chart of USDJPY

1D Chart of USDJPY