USD JPY extends breakout on dollar comeback struggling safe havens

With French election risk in the rear-view mirror and earnings-driven US stocks (S&P 500, Nasdaq) having hit new record highs, a prolonged risk-on environment has further taken hold of major financial markets.

Of course, geopolitical and economic risks certainly remain prevalent, but markets within the past three weeks have seemingly brushed off many of those concerns. As a result, market volatility continues to decrease, pressuring assets perceived as safe-haven instruments, including gold and the Japanese yen.

Meanwhile, the beginning of this trading week has seen a major rebound for the previously falling US dollar. This dollar rebound occurs after last week’s rather optimistic statement from the Federal Reserve, as well as a US jobs report that significantly exceeded expectations.

Put together, the rebounding dollar and continued drop for the safe-haven yen has led to a major price breakout for USD/JPY. Just this week, the currency pair finally broke out above a major descending parallel trend channel that extends back to the 118-area highs in the beginning of the year. Tuesday saw an extension of that breakout up to and slightly above the key 114.00 level, as the dollar continued to strengthen while the yen extended its fall.

As the dollar should remain supported in the near-term due to a relatively solid US economy and a Fed that is on a distinct tightening path, USD/JPY could continue to rise, especially if market risk perceptions and volatility remain subdued. With further momentum on the current breakout, the next major upside targets are at the 116.00 and 118.00 resistance levels.

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.