US New President

As expected USDJPY retreated and reached the 88.50 support last week.. The whole week USDJPY moved below the 50 EMA and the weekly pivot point. (refer to the 4 hr TF chart below ).  The low was supported by the Weekly S1.

Subsequently after reaching bottom, USDJPY crossed the downtrend line with RSI and lag showing a positive moved upward and find support at 50 EMA.

Fundamentally, most of the week the yen strengthened not only against the dollar but also other currencies as traders became more risk averse and aggressively sought the safety of the lower-yielding Yen. The Yen strength caught traders by surprise. For weeks, investors had been anticipating an intervention by the Bank of Japan. The Japanese government has been putting pressure on the BoJ to take aggressive action since each rise in the Yen is eroding exports and triggering corporate losses.

Investors became more optimistic about US equity markets late in the week after Congress released the last third of the TARP money and the U.S. government bailed out the financially strapped Bank of America.

The strong rally in the USD JPY is an indication of a strong start next week.

Traders may drive up equity markets in celebration of the inauguration of Obama. This may trigger more selling in the Yen. This could bring optimism to the market which could increase trader appetite for risk.

The USD is expected to start off slowly with holiday in US but volatility will continue to build up as the week goes. Development in global stocks remain the main focus. In addition, markets will also pay much attention to BoC which is expected to cut rates by 50bps to 1.00% on Tuesday.

Nevertheless, upside is expected but  to be limited by 91.52 resistance (50% retracement of 94.61 to 88.47). At this level the 200 EMA will exert resistance pressure.