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Today’s Trading Edge: USD/JPY: Pulls back sharply on Moody’s downgrade

Posted by Edward Moya on Dec 1, 2014 8:21:00 AM


USD/JPY has once again tested major upside resistance at the 119.00 area, as trading opened for the month of December.  The resistance level was first established two weeks ago on November 20th when price rallied to 118.97, but pulled back on what many to believe to be profit taking. 

Price appeared poised to start the week bid with dollar-yen once again testing the 119.00 region, but the announcement of the Moody’s downgrade of Japan to A1 from Aa3, drove the pair down.  The downgrade press release highlighted these three drivers, “1. Heightened uncertainty over the achievability of fiscal deficit reduction goals; 2. Uncertainty over the timing and effectiveness of growth enhancing policy measures, against a background of deflationary pressures; and 3. In consequence, increased risk of rising JGB yields and reduced debt affordability over the medium term.”

While the initial reversal is a textbook reaction to the downgrade, the inevitable additional stimulus that will be coming from the Bank of Japan might make this move only temporary. 

The USD/JPY (240-minute) chart above highlights the key downward pressure that was triggered from the Moody’s announcement.  If downward pressure persists, price may target 115.81, which is the 23.6% Fibonacci retracement of the 105 to 119 move.  If that level does not hold, major support will come from the 50-day Simple Moving Average which is currently trading around 111.70. 

If USD/JPY bullishness returns without a deeper pullback, the 120 level will be difficult to breach before Friday’s employment release.   

The trade: Buy USD/JPY at 116. 20 with a stop loss at 115.70 and a take profit at 119.20.  The Risk/Reward Ratio is 1:6

Edward J. Moya

Technical Strategist

WorldWideMarkets Online Trading

Topics: usd/jpy Bank of Japan, $USDJPY, DXY, USD, 10-year US Treasury, 10-year Treasury


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