The USD/JPY has received considerable support at the highly psychological 90 level over the past 24 hours. Strength in the USD/JPY comes despite broad-based weakness in the Dollar and new 2009 highs in gold. The USD/JPY’s resilience is a result of two factors. The first being the BoJ’s cautionary tone despite a little better overall outlook for Japan’s economy.

Japan’s economy clearly remains in tough spot since manufacturers and exporters are facing a strong Yen globally. It’s likely the BoJ will refrain from tightening liquidity any time soon due to the unstable state of the nation’s economy. The psychological impact of loose monetary policy combined with this week’s strong U. S. economic data is helping the USD/JPY find strong support at 90.

The second, and more prevalent, reason for the USD/JPY’s positive performance despite global weakness in the Dollar is the psychological weight carried by 90. The defense of 90 is to be expected, and the USD/JPY has strong historical support between 88 and 90. Hence, the USD/JPY has limited space to move to the downside over the immediate-term.

However, regardless of present support, the USD/JPY’s medium-term downtrend is still in the driver’s seat. While the currency pair may experience a little more immediate-term movement to the topside, the USD/JPY remains in a downward trajectory. The DPJ’s victory only adds strength to the USD/JPY’s downward momentum since the new administration favors a stronger Yen and less reliance on exports. Additionally, breakouts in the EUR/USD, gold, and U. S. equities could continue this Autumn. If so, we would only witness more selling interest in the Dollar.

Meanwhile, we’ve readjusted our trend lines to compensate for the USD/JPY’s recent downturn. The currency pair faces four solid downtrend lines to the topside along with 9/9 and 9/7 highs. As for the downside, the USD/JPY has our 1st and 2nd tier uptrend lines along with Wednesday lows and the highly psychological 90 level serving as cushions. Though we have a slightly optimistic outlook on the USD/JPY for the immediate-term, we maintain a negative outlook on the currency pair over the near and medium-term.

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