USD/JPY Breaks Out On Improved Risk Appetite and Upbeat US Data, Hits 9-Month High

USD/JPY Breaks Out On Improved Risk Appetite and Upbeat US Data, Hits 9-Month High

  • Equities hit record highs, USD/JPY follows on upbeat US data and improving risk sentiment
  • FOMC meeting minutes to be released tonight, low volatility expected
  • Following a big break of $110.30, the bulls are targeting $111.30 next

USD/JPY has finally managed to break above $110.30 and post a 9-month high on the improving risk sentiment. The bulls are now eyeing another important resistance around $111.30.

Fundamental analysis: Improving the global risk sentiment helping the USD

Investors are turning back to more risk-yielding assets as the U.S. stock market hits fresh high. The benchmark index, S&P 500, is trading above the previous high of $3385 to hit record highs. Given the correlation that USD/JPY has with equities, today the pair has attracted more buying interest to finally break out.

On the information front, the US data continues to positively surprise market expectations. Building Permits smashed analysts’ expectations of negative 0.1% by coming in at 9.2% for January.

More importantly, the US Producer Price Index (PPI) jumped 0.5% on a monthly basis in January, following December’s 0.1% rise. Annually, the PPI rose to 1.7% from 1.1%, with both annual and monthly readings beating market estimates.

Today, we also have speeches of influential FOMC members that may impact the USD price developments. Investors are also waiting for the market to absorb FOMC’s latest meeting minutes later today, but this shouldn’t bring much volatility.

Technical analysis: Bulls eye $111.30 next

USD/JPY has managed to break out above $111.30 in its second attempt after it had failed to do so a month ago. The previous failure saw the price action move nearly 200 pips lower as the bulls used this opportunity to regroup and prepare the second assault.

As seen in the chart below, the breakout looks nice and clean, as any close above $111.40 tonight will create a basis for another leg higher. The down-slipping trend line that connects the lower highs, which currently comes at $111.30, is the next target for the bulls.

USD/JPY daily chart (TradingView)

“Even with the massive USD-rally that’s shown throughout February trade, USD/JPY remained subservient to this key area of chart resistance [$110.30] that didn’t begin to give way until last night,” analysts at DailyFX said.

Generally speaking, any break above the important resistance zone automatically shifts the same from resistance to support, hence, we can expect $110.30 to offer a strong support basis for the bulls.

Summary

It seems that investors are not a great deal concerned by the coronavirus outbreak in China as equities hit record highs. The global risk sentiment is improving, and coupled with the positive US data, it is helping USD/JPY to move higher. The bulls are aiming to take the price action above the $111 mark with $111.30 seen as the next short-term target.

By Michael Harris
I began trading in my early 20's at a local company and since then have combined my knowledge and love of content to become a news writer. I am passionate about bringing insightful articles to readers and hope to add some value to your portfolios!

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