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Fundamentals

USDJPY surged sharply higher during the Asian session on Wednesday (May 17th) and is currently trading near $137. Last evening, Biden expressed optimistic expectations of reaching a debt ceiling deal, while the improving U.S. economic data and hawkish comments from Fed officials driving bets that a rate cut could be delayed, all supporting a strong rally in the USD. Instead, the JPY is under pressure and USDJPY once broke through $137 during the day.

Data: U.S. April's retail sales data is at a monthly rate of 0.4%, lower than the expected 0.7% but higher than the previous -1%. Besides, U.S. April's industrial output data is at a monthly rate of 0.5%, higher than the expected 0% and the previous 0.4%. Meanwhile, the U.S. May's NAHB Housing Market Index is 50, higher than the expected value and previous value of 45. These reports indicate that while the market generally expects the Fed to suspend interest rate hikes at its next meeting, raising borrowing costs is possible. In addition, the overall preference for U.S. data resulted in a favorable USD.

News: Satisfying leaders of both parties agreed that debt default "is not an acceptable option", and they "must reach a common ground". On the same day, U.S. House Speaker McCarthy and President Biden explained to reporters after a meeting regarding the debt ceiling, that the two Parties keep holding different opinions, but an agreement may be reached before this weekend.

In general, the USD rebounded recently, with the non-US currencies under short-term pressure and depreciating. Moreover, USDJPY is rebounding to reach the year's highs and is approaching key resistance levels. For the USD, it may only be a rebound instead of a reversal. The recent shift of market attention to the U.S. debt ceiling issue has overshadowed some other real problems, such as the banking crisis, recession, and so on. Now, when the crisis in Europe and the United States will end remains unknown, so it is reasonable that the JPY is still a safe-haven currency. From a trading point of view, it is currently an appropriate area to cut the long positions of USDJPY, that is, following the year's highs as a guide to finding potential momentum exhaustion or price inflection points. Before breaking the highs, even if there are further gains in the short term, the fundamentals are not solid.

Technical Analysis

Referring to the daily chart, USDJPY has been appreciating for 4 consecutive days, reaching the annual high. Now, it rebounded by 2.6% from the low in May, while the technical trend is also intact, suggesting a bullish movement shortly. However, USDJPY may be suppressed by the key resistance above, facing the risk that the ascending momentum fades or turns downwards. Additionally, the resistance is near the annual high of 138, with no breakthrough after several attempts. Only an effective breakthrough can another rebound take place. If USDJPY breaks through this area, it may accelerate toward the next resistance, that is the 50% Fibonacci retracement (140) of the plummet in 2022.  

Instead, if USDJPY is limited from surging upwards, it can step back from the starting point of this week at 135, with further strong support at the 50% Fibonacci retracement (133) of this year.  

Trading Recommendations

Trading direction: Short

Entry price: 137.000

Target price: 133.000

Stop loss: 141.000

Support: 135.000/133.000

Resistance: 137.800/140.000