A short covering rally is under way in USD/JPY after the strong US ISM release. A headline of 52.3, the highest level since September 2006, has seen USD/JPY rally from 117.25 up to 117.70. Profit taking by small intra-day players and short-term accounts has aided the bounce, yet bias remains on the downside. Stocks have pared back their losses, with the Dow showing losses of 70 after being down almost 200 points at one stage.
However, risk reduction aside these JPY moves appear to be feeding themselves and JPY gains are likely to continue in the near-term. Further stops are noted below 117.00. It is possile to suspect that they lie around the 116.90/95 area given the bounce out of 116.97 earlier on. Technically, the 116.95 multi-year trendline will be significant going forward. As liquidity thins into the London close we may see some speculative names make another run on this key level.
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