Today the US Census Bureau released a strong report on Durable Goods Orders for June.
Durable Goods Orders (June m/m): 0.7%, forecast: 0.4%, previous -0.9%
Core Durable goods Orders (June m/m): 0.8%, forecast: 0.6%, previous 0.0%
Durable goods are items that last more than 3 years. They usually require more capital to invest in and for businesses are things like computers, fabrication machines etc. and for consumers are things like a TV, or new washing machine. These require a positive business outlook, or ample disposable income for consumers. The strong rebound in June thus reflects improving economic conditions at the end of Q2. The strong durable goods numbers should translate to a strong USD. However in the USD/JPY, this is not so:
USD/JPY started the 7/25 session pushing at a falling trendline from June, seen in the 4h chart. There are some evidence that the trend is shifting in this time-frame, as the market failed to make a new low after stalling around 101.10. The latest bullish 4H candle was an engulfing one, and suggests further upside. The strong US data failed to push the pair higher, as USD/JPY stalls around 101.90. The prevailing downtrend, falling resistance, and the fact the 4H RSI is in overbought area (above 70), may be keeping traders from springing USD/JPY free from the 2-month resistance.
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If we do get a pullback, we might be able to get in more buyers that will help USD/JPY shift toward a bullish market in the 4H chart. If there is a pullback, watch out for support around 101.50, especially if the 4H RSI stalls near 40 and turns back up. This area could also be reinforced by this past week’s rising trendline. A breakdown below 101.50 however, should maintain pressure to the 101.10 handle, with downside risk toward the 2014-lows around 100.75.
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In the daily chart, you see that both the bullish and bearish scenario sprung from the 4H chart is first limited to the descending triangle. I noted the downside for now is limited to 100.75. Upside risk should for now be limited to 102.50. A break of these levels will be needed to suggest direction in the medium term.
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