×

The weakness in dollar/yen price action is a bad sign for dollar bulls

Japan US currencies
Toru Hanai | Reuters

Despite relative calm in the foreign exchange market at the beginning of this post-holiday week, the market will be closely watching persistent dollar weakness, in particular the key 111.0 support level in the relationship between the U.S. dollar and the Japanese yen.

Some equity traders pay close attention to the dollar/yen exchange rate, as it often can be an early tell as to where U.S. stocks are heading and a gauge of risk appetite in the market.

USD/JPY vs. S&P 500

The U.S. dollar/Japanese yen appeared to stabilize toward the end of last week's trade as the pair held support ahead of the 111.0 figure. However, any rebound quickly fizzled in early Asia trading as the pair failed to hold above 111.50 and earlier found itself within arm's length of the 111.0 barrier.

Finally, in Monday's trade, it fell below the 111.0 mark briefly before rebounding ever so slightly.

The weakness in price action is a bad sign for dollar bulls, suggesting that the greenback's sell-off may not be over. This comes as skepticism surrounding the Federal Reserve's actions in 2018 continues to dominate flows in the market.

As many analysts have noted, inflation — or lack thereof — is the central fundamental variable at play in dollar trade going forward.

With inflation data still very much subdued, traders see no reason that the Fed will raise rates next year at the triple-rate-hike pace seen this year. Looking ahead, that growing doubt continues to weigh on the dollar trade.

Vote
Vote to see results
Total Votes:

Not a Scientific Survey. Results may not total 100% due to rounding.

WATCH: FX strategist see dollar stronger and yen weaker at end of 2017

Videos

Trades to Watch

Trader Bios

About

Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Sara Eisen

Sara Eisen joined CNBC in December 2013 as a correspondent, focusing on the global consumer. She is co-anchor of the 10AM ET hour of CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET), broadcast from Post 9 at the New York Stock Exchange.

In March 2018, Eisen was named co-anchor of CNBC's "Power Lunch" (M-F, 1PM-3PM ET), which broadcasts from CNBC Global Headquarters in Englewood Cliffs, N.J.

Read more

Connect