Forex snapshot

Dollar strength continues to be the theme, with the US currency making gains versus its safe haven counterparts.

USD/JPY currency
Source: Bloomberg

USD/JPY remains above 200-DMA

It is another busy week for USD/JPY, which in itself will provide plenty of catalysts for both currencies, but overall the US dollar still seems to have the upper hand.

Although the dollar has edged back from the gains made in the wake of the Federal Open Market Committee decision last week, the pair is still trading at its highest level since the beginning of June and remains above the 200-day moving average.

Today is relatively light on the economic front, but a steady grind of data including US PMIs tomorrow and then the Bank of Japan statement on Friday, will keep this currency pair in focus all week. Tomorrow’s ISM non-manufacturing reading is expected to edge higher, which may prompt another round of dollar buying.

The immediate targets for USD/JPY are ¥103 and ¥104, while those with a longer-term view will be looking towards the 2014 high of above ¥105.

A drop through the 200-DMA would signal yet another retest of the support zone provided by ¥101. With the daily relative strength index having moved out of overbought territory last week, the upside scenario has greater weight to it.

As a reminder, the weekly chart still shows an extended uptrend in progress, with the 20-week MA still holding above the 50-week. Weekly stochastics are also giving a bullish reading for the first time since early November of last year.

USD/CHF close to highest level since January

Here again the dollar has dropped back, but USD/CHF is still within striking distance of its highest level since January.

US dollar strength prevails here, even if expectations of an earlier Federal Reserve rate hike have been pared back from the rather euphoric situation of last week. We can see that the 50-DMA has crossed above its 200-DMA counterpart for the first time since April 2013, and the first ‘taper tantrum’ of that spring led the dollar to spike rapidly higher.

Although we have Swiss CPI on Wednesday and then unemployment figures on Friday, it is the US side of things that will take precedence, as is the case in USD/JPY.

Looking back it can be seen that the double attempt to test CHF0.87 was the beginning of a bounce for USD/CHF that has carried it higher ever since. The highs for the year around CHF0.9120-0.9130 are likely to prove to be significant resistance. However, so long as the trend of improving US data holds we are likely to see an attempt to break these levels. The daily RSI is no longer overbought, giving the currency pair headroom, and any drop lower is likely to be contained by the CHF0.9 level.

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