USD/JPY is expected to trade in a lower range. The pair is capped by a declining trend line (since July 25), which confirms a negative view. The downside momentum is further reinforced by its declining 20-period moving average, which acts as a resistance role and maintains the downside bias. Additionally, the relative strength index is below its neutrality level at 50 and lacks upward momentum. As long as 106.65 holds on the upside, look for a further drop towards 103.70. A break below 103.70 would trigger a drop towards 103.30.
Market Commentary:
On Monday, US stock indices ended lower as energy shares were dragged by falling oil prices. The Dow Jones Industrial Average slid 0.4% to 18,493, the S&P 500 fell 0.3% to 2,168, and the Nasdaq Composite was down less than 0.1% to 5,097. Target (TGT) gained 1.8% helping the consumer discretionary sector become the only winner. Yahoo (YHOO) shed 2.7% after announcing the sale of its core internet business to Verizon Communications (VZ).
European stocks edged higher with the STOXX Europe 600 adding 0.2%. Germany's DAX rose 0.5% while the UK's FTSE 100 was down 0.3%.
Nymex crude oil marked a three-month low of $42.97 a barrel before settling at $43.13, 2.4% lower on day. Gold dropped 0.5% to $1,315 an ounce and silver was broadly flat at $19.47 an ounce. The benchmark 10-year US Treasury yield was 1.571%, compared with 1.568% on Friday.
On the economic front, the US Dallas Federal Manufacturing Activity Index improved to -1.3 in July (vs. -10.0 expected) from -18.3 in June. Germany's IFO business climate index fell to 108.3 in July (vs. 107.5 expected) from 108.7 in June, and the expectations sub-index declined to 102.2 (vs. 101.6 expected) from 103.1.
On the forex front, the US dollar softened against other major currencies as traders focused on decisions to be made by the US Federal Reserve and the Bank of Japan later in the week. EUR/USD rebounded 0.2% to 1.0990 (intraday low at 1.0950). GBP/USD gained 0.3% to 1.3140. USD/JPY was down 0.3% to 105.76. As a result, the ICE Dollar Index edged down 0.2% to 97.25.
The Canadian dollar continued to be weighed down by weaker oil prices with USD/CAD advancing 0.7% to 1.3213. The pair gained 2.1% or 270 pips in a winning streak of five straight sessions.
Recommendations:
The pair is trading below its pivot point. It is likely to trade in a lower range as long as it remains below the pivot point. Short positions are recommended with the first target at 103.70. A break below this target will move the pair further downwards to 103.30. The pivot point stands at 105.65. In case the price moves in the opposite direction and bounces back from the support level, it will move above its pivot point. It is likely to move further to the upside. According to that scenario, long positions are recommended with the first target at 103.70 and the second one, at 103.30.
Resistance levels: 106.35, 106.75. 107.15
Support levels: 103.70, 103.30, 102.90
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