USD/JPY Downtrend Remains; Potential Pennant in GBP/USD

Talking Points:

– A intensity liaison surrounding Japanese Finance Minister Taro Aso has traders rethinking Abenomics’ ‘weak JPY’ indicate of view.

– Signs that a transition understanding with emerge between a EU and a UK has given new life to a British Pound.

Sentiment for a US Dollar stays churned during a start of a week.

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The US Dollar (via DXY Index) has given adult progressing gains as traders continued to digest a ramifications of US President Trump’s tariff proclamation late final week. With Canada, Mexico, and now Australia exempted from a aluminum and steel tariffs, it’s increasingly looking like a devise is some-more ‘bark’ than ‘bite.’ That said, a series of other countries and mercantile regions, like China and a Eurozone, haven’t been postulated exemptions and a awaiting of a tellurian trade fight remains.

Accordingly, with disastrous trade headlines out of a United States cooling off a bit, and in care of a unusually light mercantile calendar on Monday, traders’ courtesy has incited to domestic developments out of Japan and a United Kingdom as a tip drivers for FX markets on Monday.

Will a Scandal Sink Abenomics?

A intensity liaison has emerged tighten to Japanese Prime Minster Shinzo Abe, heading to conjecture over either or not a vaunted ‘Abenomics’ module – a cornerstone of that is a diseased Japanese Yen – will sojourn in place. Taro Aso, a Japanese Finance Minister, is pronounced to have altered papers to mislay his and Abe’s names from papers relating to a sale of open land to a school.

While FM Aso has strongly refused to resign, it is not a distant widen to trust that an erosion in trust with a stream supervision might lead to a stream policies being drawn into question. Implicitly, this would meant reduction support for a diseased JPY policy.

Price Chart 1: USD/JPY Daily Timeframe (March 2017 to Mar 2018)

USD/JPY Downtrend Remains; Potential Pennant in GBP/USD

The timing of a potentially JPY-positive news comes as USD/JPY tests a daily 21-EMA, that has been a fortitude of a downtrend in place given early-January. While a mangle by pronounced relocating normal wouldn’t symbol a finish of debility – cost stays on a downside of a 52-week operation that tangible 2017 – it would consecrate a change in a opinion from USD/JPY from ‘bearish’ to ‘neutral.’

Similarly, cost stays next a uptrend from a late-2012 and mid-2016 lows (dotted line on draft above), suggesting that there is a good understanding of work to be finished before a ‘bullish’ opinion can be once again assinged to a pair. The welfare is to sell USD/JPY on rallies for a time being.

A Brexit Transition Deal is in a Works

The British Pound has been given a hint for gains during a start of a week as news emerged that a Brexit transition understanding is in a works between a EU and a UK. After 4 days of talks between negotiators, a youth UK Brexit Minister Robin Walker announced that a transition understanding could be announced in a entrance days, that would give a UK dual years over a Mar 2019 exit to exercise new laws and regulations outward of a EU so as to equivocate intrusion to commerce.

Price Chart 2: GBP/USD Daily Timeframe (August 2017 to Mar 2018)

USD/JPY Downtrend Remains; Potential Pennant in GBP/USD

The certain news about a Brexit talks come during a time when not most as been going right for a UK in new weeks (nor has anything been going wrong; a news upsurge has been decidedly bland). But a timing for GBP/USD couldn’t be better: cost has been hugging a uptrend from a Nov and Dec 2017 and Jan 2018 lows as support given a start of March.

Traders might now see that a bullish streamer is combining in GBP/USD. A tighten over 1.3950 this week on a behind of certain Brexit developments would open adult a doorway for a lapse to highs seen in Jan nearby 1.4345/50. Momentum has cooled extremely over a past dual months even as cost has hold up, suggesting that a overbought readings seen in several technical indicators have been entirely digested.

Read more: FX Markets Turn to US CPI Retail Sales, Kiwi GDP, SNB Rate Decision


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— Written by Christopher Vecchio, CFA, Senior Currency Strategist

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