Overbuying Conditions Help The USD/JPY Return Gains Made On Friday

Technically overbought conditions are helping the USD JPY give back gains following a huge surge to the upside on Friday. The Dollar rallied sharply higher after better than expected U.S. jobs data pointed toward the possibility of the Fed raising rates sooner than expected.

The reversal of carry trade positions also helped send the USD JPY to levels not seen since early November. The friendly employment numbers forced traders to buy U.S. Dollars to pay back borrowed funds and short borrowed Japanese Yen. Last week, the Bank of Japan helped put in the top in the Japanese Yen when it announced another stimulus package. The BoJ seems to be leaning toward a less expansionary policy while the Fed readies to tighten. This should help the Dollar gain ground on the Yen.

Technically, the USD JPY is trading inside of a 92.32 to 84.83 range. Last Friday’s rally exceeded the retracement zone of this range at 88.57 to 89.46 before finding resistance at a downtrending Gann angle at 90.51. The overnight action suggests that a pullback to 87.80 - 87.10 is possible. Up trending Gann angle support is at 87.83.

Last week, the U.S. Dollar posted a huge gain versus a basket of major currencies. The strong up move was triggered by a better than expected Non-Farm Payrolls Report which showed a decrease in the unemployment rate from 10.2% to 10%. The pace of job losses also declined and there was a revision to the better in October.

Traders bought the Dollar on the thought the Fed would begin accelerating its process of reducing stimulus measures while gearing up to raise interest rates sooner than previously expected.

Technically, the move in the Dollar appears as a spike on the charts, but it did lay the foundation for a further rally this week by taking out the previous week’s high at 75.66. The weekly chart is the one to watch for the best change in trend indicator. At this time the main trend will turn up when this index crosses the November top at 77.50.