Forex snapshot

Against the yen the US dollar is continuing to lose ground, but its performance against its Canadian counterpart is looking much healthier.

USD/JPY currency
Source: Bloomberg

USD/JPY could slip back to July lows

The drift lower that has characterised USD/JPY over the year so far continues today, with the currency pair losing its tenuous hold on the 50-day moving average. Weaker US data has certainly put the US dollar on the defensive. A failure to hold above the ¥102 level could easily see the currency pair slip back in the direction of the July lows.

It is a big week for both US and Japanese data, with Japanese jobless numbers out tomorrow, swiftly followed by Case-Shiller home data. However, it is to the latter half of the week that we turn to see the real impact of news, with ADP numbers and a Federal Reserve meeting on Wednesday and non-farms and US manufacturing purchasing managers’ index on Friday.

Ultimately, the loss of the 200-DMA puts USD/JPY on the defensive and a small turn lower in the daily relative strength index shows that the downside scenario is gaining the upper hand. On the hourly chart the momentum indicators have turned lower, and the short-term bounce from ¥101 that began over a week ago seems to have run its course. We would need a close back through the Friday high above ¥101.90 to suggest the trend has changed direction, but for the time being I suspect ¥101 has become the next destination for this pair.

USD/CAD encouraged by US data

Although it has lost ground in recent weeks, the recovery of the 50-DMA suggests USD/CAD may see more gains. A general building of long positions in the Canadian dollar has taken place in recent weeks, but as the US dollar has come charging back those long positions now look vulnerable, giving further upward impetus as speculators sell their positions in CAD.

As with USD/JPY, the picture is being heavily influenced by the barrage of US data that we can expect this week. Last Friday saw the loonie drop back against the US dollar thanks to a strong reading on US durable goods. If the data this week comes in above expectations, the trend of a rising US dollar could be extended.

The daily RSI is not yet overbought, giving some room to the upside, and the big question now is whether USD/CAD can move back above the 200-DMA and end the period of weakness that it has endured. Any move above the 200-DMA targets C$1.09, while weakness to the downside should be capped by the C$1.0630 region. 

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