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USD/JPY hits the top of our watchlist for the session after a clear upside break of resistance and ahead of lots of commentary from the Federal Reserve this afternoon.

Before moving on, ICYMI, today’s Daily London Session Watchlist looked at an opportunity forming on EUR/JPY ahead of German data and a speech from ECB President Lagarde, so be sure to check that out to see if there is still a potential play! 

Equity Markets Bond Yields Commodities & Crypto
DAX: 12875.77 -0.23%
FTSE: 5949.69 0.00%
S&P 500: 3404.41 +1.29%
NASDAQ: 11269.11 +1.03%
US 10-YR: 0.778% +0.03
Bund 10-YR: -0.493% +0.014
UK 10-YR: 0.305% +0.016
JPN 10-YR: +0.027% +0.001
Oil: 39.53 -2.80%
Gold: 1886.20 -1.18%
Bitcoin: 10621.54 +0.32%
Ethereum: 341.01 +0.41%

Fresh Market Headlines & Economic Data:

Wall Street rally gains steam, with the Dow up more than 400 points as Trump urges airline aid

Oil falls on U.S. stimulus impasse and U.S. stockpiles

US Mortgage Applications Increase +4.6% in Latest MBA Weekly Survey

Fed’s Harker: Recovery plateauing, return to old levels ‘will take some time’

Canada Ivey PMI falls to 54.3 in Sept vs. 67.8 in August (seasonally adjusted)

ECB’s Lagarde pledges no premature removal of monetary aid

German Industrial Production in August 2020: -0.2% m/m

French Trade Balance remains at a -7.7B euro deficit in August

Italian Retail sales fell by -7.2% y/y by value in July 2020

UK mortgage applications at 12-year high as house prices keep rising

UK House prices in September 2020 were 7.3% higher than the same month a year earlier

U.K. plans to quit Brexit talks if no deal clear next week

Upcoming Potential Catalysts on the Economic Calendar

Fed Williams speech at 6:00 pm GMT
FOMC Meeting Minutes at 6:00 pm GMT
Fed Kashkari speech at 6:15 pm GMT
Fed Williams speech at 7:00 pm GMT
U.S. Consumer Credit Change at 7:00 pm GMT
New Zealand Business Confidence at 8:00 pm GMT
Fed Evans speech at 8:30 pm GMT
China Caixin Services PMI at 9:45 pm GMT
Japan Current account at 11:50 pm GMT
Bank of Japan Kuroda speech at 1:00 am GMT (Oct. 8)
U.S. Vice Presidential Debate at 1:00 am GMT (Oct. 8)
Japan Eco Watchers Survey at 5:00 am GMT (Oct. 8)

What to Watch: USD/JPY

USD/JPY 1-Hour Forex Chart
USD/JPY 1-Hour Forex Chart

On the one-hour chart above of USD/JPY, we can see short-term upside momentum as global risk sentiment flipped positive, likely a reaction to the U.S. President walking back his earlier announcement to focus away from a U.S. stimulus package.

USD/JPY broke above a strong resistance area around the 105.75 area, to now testing the major psychological level of 106.00. But it looks like the bulls have run out of steam at the moment as 106.00 seams to be holding strongly without a fresh major catalyst in the morning U.S. session.

Looking forward, volatility could pick up once again for USD/JPY with lots and lots of speeches from Fed officials this afternoon, and we’ve got the meeting minutes from the latest FOMC monetary policy meeting / statement. It’s not likely we’ll see any surprises from these events, but if we do, it should affect the financial markets quickly.

We’ve also got potential catalysts from Japan in the upcoming Asia session, and while they are a low probability for sparking a pop in yen volatility, the speech from BOJ Governor Kuroda is worth watching in case we get any surprises there.

So, it looks the USD/JPY bulls are in control for now and based on the price action, traders who are still bullish have several entry options to consider.

Going at market, scaling in starting at market prices, is a strategy to consider for the more aggressive traders who think the Fed events will propel the dollar higher / we’ll see a more positive risk sentiment environment.

For the more conservative, waiting for a pullback to the broken resistance area around 105.75 is something to consider, especially given the overbought conditions being signaled by the Stochastic indicator.

This would provide a better potential return-on-risk, assuming using the daily ATR as a stop guide (around 50 – 60 pips) and going for a swing target at the next resistance area just under 107.00.

For the bears, it’ll likely take another round of broad risk-off sentiment to get traders back to selling USD/JPY, and/or some very dovish comments from the Federal Reserve this afternoon.

If there is a signal that the economy is going to be weaker than earlier projected given the lack of stimulus, or a need to keep rates low beyond the planned 4 to 5 years, then that could draw in sellers quickly for a short-term momentum move lower.