The USD/JPY has finally formed a bottom, narrowly avoiding a retest of July lows in the process. The Dollar is appreciating lightly across the board today after Unemployment Claims missed expectations and the ISM Services PMI printed in line. Meanwhile, crude and the S&P are returning earlier gains as gold continues to strengthen above $980/oz.

The combination of strength in gold and the Dollar tells us that investors are half-heartedly choosing to divest from riskier assets and into safer venues. However, USD/JPY investors shouldn’t get their hopes up since today’s bottom comes on light volume and a strong downward bias remains. The currency pair has experienced an intense selloff, so a little bottom fishing is not surprising.

The USD/JPY remains well below our 1st tier uptrend and 2nd tier downtrend lines while recent activity has clearly been sell-side heavy. The question becomes how far the USD/JPY’s bounce will go, and whether today’s bottom proves to be lasting or only temporary. In the meantime, bulls will fight to get the USD/JPY back above its 1st tier uptrend line and into respectability. As for the downside, it will be key for the USD/JPY to remain above July lows. If not, all bets are off and we may witness a retest of
90. Our 1st tier uptrend line is approaching an inflection point with our 2nd tier downtrend line. We notice similar occurrences in both the EUR/USD and GBP/USD, indicating further volatility could be in the cards. Japan will release Capital Spending data late Thursday. A better than expected number could add some immediate-term downward pressure n the USD/JPY. On the other hand, worse than expected Capital Spending data could help the USD/JPY climb back above our 1st tier uptrend line.

Present Price: 92.46

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