Forex: USD/JPY bouncing to 98.00

FXstreet.com (Barcelona) - After strong early pressure towards 97.36 low, the USD/JPY is engaging in its attempt to recover the 98.00 ground. The attempt on the European opening was capped at 97.97 high and, following some consolidation, the pair is again at its highs and looking for the 98.00 handle.

It’s being reported that Japan may diversify some of its FX reserves into the bond markets of South East Asia and the announcement could come as early as Friday May 3rd. “Admittedly, the scope for flows into EM currencies is significant. Japan has a total FX reserve pool of US$1.24 trn and, as Chart 1 shows, only a tiny fraction of this is currently invested in currencies outside the IMF's SDR basket (USD, EUR, GBP, JPY, CHF). There is also a strong tendency to hold reserves in the form of bonds rather than cash deposits, which appears to bode well for EM bond markets in particular”, wrote UBS analyst Gareth Berry, adding that such process is not yen-negative, it’s a very modest dollar-negative and it will proceed at an agonizingly slow pace.

“Corrective rally on oversold hourlies, faces initial resistance s at 98.00/30, with previous low and 50% retracement of 99.74/97.35 at 98.50, reinforced by 20/55 day EMA’s, bearish crossover seen as ideal cap”, wrote Windsor Brokers analyst Slobodan Drvenica. “With near-term structure being negatively aligned, further downside is seen favored after the correction, with 97.20/00 seen as next targets”, he added, pointing to eased bear-pressure in case of an extension above 98.50, but only regain of 99.00 barrier could shift focus higher and re-expose recent highs and psychological 100 barrier.