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The dollar could help USDJPY bounce off support

Some mixed data out of Japan during the Asia-Pac session and some COVID-19 news from the Asian and Antipodean countries are putting some pressure on the yen, whilst the US dollar is looking likely to be bid into this week’s data and month-end rebalancing.

Morning Brief

The economic calendar is light and the trading across most assets is within pre-defined ranges and long-term trends. Last night there was some Japanese Unemployment data that came in slightly worse than expected while the decline in Retail Sales was in0line with analyst’s predictions.

On an hourly chart, the USDJPY is looking to the 200-period exponential moving average as key support, along with the 110.50 level. The higher time frames are showing that the momentum to the upside is increasing though the monthly is trading in a consolidation pattern. A break higher than April’s highs will release the currency pair and a test towards 121.00 is my first target.

Traders’ sentiment on the ActivTrader platform is still very bearish the currency pair and as the sell orders increase the more likely these traders get squeezed out of their positions.

A rising US dollar could accelerate the moves higher in the USDJPY so I will be looking for the DXY to close above the daily 200-period ema.

WTI crude closed at its lows yesterday as surges in COVID-19 cases are spreading around the globe. This week is also hosting the next OPEC+ meeting, so there will be a lot of positioning ahead of that plus we’re a month and half-year end, so some rebalancing may take place too over the coming days.

UK house prices are continuing to rise and at a faster rate. Prices in the United Kingdom climbed 13.4% in June year-on-year and 0.7% monthly, according to the data released by the Nationwide Building Society. The annualized increase is the highest in 17 years, with the average price rising from £242,832 to £245,432 in June.

The longer the US dollar stays around the $92 and daily 200 ema, the more I am convinced this GBPUSD is preparing to test lower. EURGBP is still in a downtrend and if we do get another flush to the downside, we may see GBPUSD find support but with the coronavirus flaring up across larger areas of England and anecdotal evidence showing that even a double dose of vaccine isn’t preventing people from contracting the disease, we could see the pound come under a lot of pressure. It would take a very sharp selloff in the US dollar to kick start the pound's recovery.

Later today we have more data around mortgages for the UK, preliminary CPI data for Germany, and some central bankers speaking for the ECB and Fed. At 3.00 pm there is the US Conference Board Consumer Confidence which may give the markets something to trade-off, but generally, I feel tomorrow, and ADP is the first chance for the forex markets to see a news-driven move.

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