USD/JPY is expected to trade with bearish bias. The pair hit the daily low of 101.94 on Friday before rebounding to levels above 102.00. Currently, the pair is trading around the 20-period (30-minute chart) moving average, which stands below the 50-period one. Meanwhile, the intraday relative strength index remains below the neutrality level of 50, suggesting a lack of upward momentum for the pair. Therefore the intraday outlook continues to be bearish. A break below the immediate support at 102.00 would trigger a further decline to 101.50.
Market Commentary:
On Friday, U.S. stocks again failed to make decisive moves in either direction. The Dow Jones Industrial Average edged down 0.1% to 18,432, while the S&P 500 gained 3 points to 2,173 and the Nasdaq Composite was up 7 points to 5,162. In fact, by the end of July, the DJIA has risen for six straight months in a row; and the S&P 500, for five.
European stocks rebounded with the STOXX Europe 600 rising 0.7%. Germany's DAX gained 0.6%, while the U.K.'s FTSE 100 was up less than 0.1%.
On the economic front, the U.S. Commerce Department reported that GDP grew at an annualized rate of 1.2% quarter on quarter in 2Q, well below the 2.6% advance economists surveyed by The Wall Street Journal had forecast. The soft GDP report dampened expectations that the U.S. Federal Reserve would raise interest rates soon. As a result, U.S. government bonds strengthened, the U.S. dollar tumbled, and prices for precious metals increased.
The benchmark 10-year U.S. Treasury yield fell to 1.458% from 1.511% Thursday. Gold gained 1.1% to $1,350 an ounce and silver was up 0.8% to $20.31 an ounce. Nymex crude oil rebounded 1.1% to $41.60 a barrel.
During Asian trading hours on Friday, the Japanese yen surged to 102.85 against the U.S. dollar (previous close at 105.24) after investors were not satisfied with the Bank of Japan's new monetary easing -- nearly doubling its annual purchase of exchange-traded funds to 6T yen while keeping unchanged its purchase of Japanese government bonds at 80T yen and its deposit rate at -0.1%. The U.S. GDP report then added fuel to the yen's gains pressing USD/JPY down to 101.94. The pair ended the session at 102.05, down 3.0% on day.
At the same time, EUR/USD rose 0.9% to 1.1170 (day-high at 1.1197) regaining its 200-day moving average. GBP/USD was up 0.5% to 1.3226 (daily high at 1.3300). As a result, the ICE U.S. Dollar Index plunged 1.3% to 95.53, the lowest closing level in a month.
Recommendations:
The pair is trading below its pivot point. It is likely to trade in a lower range as long as it remains below the pivot point. Short positions are recommended with the first target at 102.40. A break below this target will move the pair further downwards to 102. The pivot point stands at 103.10. If the price moves in the opposite direction and bounces back from the support level, it will move above its pivot point. It is likely to move further to the upside. According to that scenario, long positions are recommended with the first target at 103.95 and the second one at 104.60.
Resistance levels: 103.95, 104.60, 105.50
Support levels: 102.00, 101.50, 101
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