The US dollar has started to drift lower against the Japanese yen currency as weak Chinese data and missile launch from North Korea caused the risk sensitive USDJPY pair to plunge.
Most notably Chinese retail sales came in at 2.5% growth year on year, widely missing the expected 7% number, and last months prior 8.5%. Such a big decline has raised fears about the rapid slowdown in Chinese spending.
Asian stock markets have also been suffering losses been slumping prior to the data such as China’s Shanghai Composite and Hong Kong’s Hang Seng, however, Japan’s Nikkei continues to tread water around the 30,000-benchmark level.
It should also be noted that Chinese Industrial production and investment for the month also missed expectations, Chinese officials cited the renewed COVID-19 outbreaks and also widespread flooding for the miss.
Japan has also shut down a large Suzuki factory due to a COVID-19 outbreak, while North Korea appears to be engaged in anther missile launch in the North Sea. All these factors have caused the USDJPY pair to weaken.
The technicals for the USDJPY pair shows that a major Bollinger Band breakout is looming. The daily time frame shows that the upper and lower bands have been narrowing, which hints that a powerful directional breakout may come soon.
According to the ActivTrader Market Sentiment tool some 73% of traders are bullish towards the USDJPY pair, which may hint those further losses are coming as positive sentiment is rising while the price falls.
This is a bearish constrain signal which is pointing to more USDJPY losses alongside the technicals, and we should also consider that the fundamentals are also more bearish due to the mentioned risk-off events.
USDJPY Short-Term Technical Analysis
Technical analysis on the four-hour time frame shows that the USDJPY pair is now starting to trade towards the neckline of a large head and shoulders pattern.
According to the overall size of the head and shoulders pattern the USDJPY pair could be preparing to drop by some 200 points in the short-term, taking the USDJPY back towards the 107.50.
USDJPY Medium-Term Technical Analysis
The daily time frame is showing that the USDJPY pair shows that a major Bollinger Band breakout is looming as the upper and lower bands narrow, which hints that a powerful directional breakout may come soon.
Should we see the USDJPY pair fall under the lower Bollinger Band it should further increase selling pressure and accelerate technical selling towards the 108.40 to 107.00 price area.