The Dollar/Yen closed higher on Friday after posting a dramatic closing price reversal bottom. The move may have been fueled by end-of-the-month position-squaring or profit-taking. Some traders said better-than-expected U.S. consumer spending news may have caught short-sellers off-guard fueling a massive short-covering rally in all major currencies.
On Friday, the USD/JPY settled at 105.935, up 1.199 or +1.14%.
The Commerce Department said on Friday that consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 5.6% last month after a record 8.5% jump in May as more businesses reopened.
Economists polled by Reuters had forecast consumer spending would advance 5.5% in June. When adjusted for inflation, consumer spending increased 5.2% last month after surging 8.4% in May.
Traders also said the increase in consumer spending sets up consumption for a rebound in the third quarter, though the recovery could be limited by a resurgence in COViD-19 cases and the end of expanded unemployment benefits.
Daily Swing Chart Technical Analysis
The main trend is down according to the daily swing chart. A trade through 107.530 will change the main trend to up. A trade through 104.189 will negate the closing price reversal bottom and signal a resumption of the uptrend.
The closing price reversal bottom will be confirmed on at trade through 106.055. This chart pattern will not change the trend to up, but it will indicate that the buying is greater than the selling at current price levels. It’s basically an adjustment in the main trend, designed to alleviate some of the downside pressure.
The short-term range is 107.530 to 104.189. Its 50% level at 105.860 could act like a pivot over the near-term as investors try to determine whether the dollar has taken enough of a beating or if it’s ready for round two.
The main range is 112.226 to 104.189. Its retracement zone is resistance and a possible upside target. It is essentially controlling the longer-term direction of the USD/JPY.
Although some short-term traders are focusing on the closing price reversal bottom and they very well should be because there is the threat of a sizeable retracement and a major giveback of profit, the longer-term traders are keeping their eyes on U.S. interest rates.
Treasury yields continued to move lower on Friday with short-maturity rates reaching record lows as investors remained worried about the pace of economic recovery.
Yields are what the major players are watching. So unless there is a dramatic turnaround in U.S. Treasury yields, most of the longer-term investors are likely going to fade this possible upcoming short-covering rally, and look for another entry level to increase their short positions.