Greenback Strengthens as North Korea Tensions Ease

Greenback Strengthens as North Korea Tensions Ease
August 16, 2017

 
We had forecasted the USDJPY to decline from the level of 110.80 in our July 31st report. The analysis report had also mentioned our intention to go short in the currency market and simultaneously invest in a put option. The pair hit a low of about 108.60, thereby leading to profit in both trades. In the past two days, the currency pair has recovered to 110 levels. We anticipate the uptrend to continue due to reasons given below.

On the basis of a report received from the Korean People’s Army, Kim Jong Un stated that he would monitor the actions of the US for some time before making a final decision on a missile strike on Guam. The financial markets have already let out a sigh of relief and the recovery is expected to continue in the days ahead. As risk appetite increases, the Greenback is expected to gain against the Yen, a safe haven currency.

The Greenback is also expected to rally further on the basis of New York Fed President William Dudley’s support for another interest hike in 2017, provided the economy continues to improve as per expectations.

Later today, the Fed is expected to release the minutes of July 26 policy meeting. The market is looking for clues regarding the Fed’s plans to unwind the massive $4.5 trillion bond portfolio, accrued while attempting to stimulate economic growth in the aftermath of the 2008 credit crisis. If the Fed starts reducing its holdings, then it would slightly increase the rates on mortgages and other loans. Additionally, it would also increase the odds of a third rate hike this year.

On the other hand, the Bank of Japan is expected to continue with its accommodative policy, even after registering a 4% GDP growth in the second-quarter. The central bank has categorically stated that it will not consider normalisation of interest rates before inflation rises to the target rate of 2%. Analysts believe that the target is practically unachievable in the short-term and the Bank of Japan may have to downwardly revise the target at some point in time. Thus, an increase in risk appetite is expected to favour the continuation of the current rally in the USDJPY pair.

The currency pair has crossed above the descending trend line. The bullishness is also confirmed by the rising stochastic oscillator. On the upside, resistance exists at 112.10. The immediate support on the downside is at at 109.80. Thus, technically, we forecast an uptrend in the USDJPY pair.

USDJPY - Technical Analysis - 16th August 2017

A long position can be taken in the spot Forex market to gain from the probable uptrend. We wish to open the position near 110.30 and place a stop loss order below 109.40. If the pair continues to rise as forecasted, then we would book profit near 112.10.

To generate maximum returns from the analysis, we also wish to invest our surplus cash in a call option offered by one of our principal binary brokers. The trade will be opened when the pair trades near 110.30 in the spot market. A date around August 24th would be chosen for the expiry of the contract.

Disclaimer: The trading analysis offered here is our opinion. It is not provided as trading advice, merely an indication of our trading plan. We cannot guarantee success and we encourage traders to incorporate a strong money management strategy to limit losses. Please use this article as part of your own research before formulating strategies prior to trading. 

Sammy

Sammy

Sammy is our forex expert, with over 20 years experience in the financial sector, she will be keeping you up to date with the ups and downs of currencies around the world


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