USDJPY: End Of Week Technicals - Breakdown to Ranging Reversal

Forum on trading, automated trading systems and testing trading strategies

Press review

newdigital, 2015.01.17 13:35

US Dollar Fundamentals (based on dailyfx article)

Fundamental Forecast for Dollar: Bullish

• With FX volatility rising to three-year highs, the Dollar’s safe haven status as garnering new attention
• The SNB’s decision to drop the EURCHF cap leveraged volatility and raised expectations of ECB stimulus

A tumultuous week for the currency market has found the Dollar closing its fifth consecutive week in the green and well on its way to a record-breaking seventh consecutive month climb. Yet, whether this benchmark is able to keep pace or tumbles into a reversal depends heavily on what happens over the next few weeks. Before the Fed feeds speculation for the timing of its first hike on the 28th, the ECB will decide this week whether it will lever the Dollar’s appeal by expanding its own stimulus effort. And, with volatility trending higher and market shocks (oil plunge, Russia, the SNB) increasing in frequency; traders’ appetite for havens is raising the Greenback’s profile once again.

In the Dollar’s climb these past quarters, much of the fundamental fuel that was siphoned for the move was sourced from the rate expectations. Yet, as persistent as the ‘mid-2015’ forecast for a first FOMC move has been, developments and data have offered a more neutral view of the liftoff. Adding to previous concerns of troubling international winds and tepid wage growth, this past week’s CPI reading showed headline inflation pressures were at a five-year low while the core level slipped to 1.6 percent.

Market speculation surrounding the timing and tempo of the central bank’s rate regime has also weighed expectation. Fed Fund futures are now only pricing in a 0.42 percent benchmark rate by the end of the year. However, as debatable as the timing of the first hike is, what is clear is that the US is already on a much more hawkish footing than its counterparts. The Bank of Japan and European Central Bank are pressing unconventional policy while many others have been anchored to a neutral bearing with a dovish bias. That represents relative appeal for the Greenback. And, we will assess just how much comparative strength the currency can sustain this week.

Preempting the Fed’s policy meeting towards the end of this month, both the BoJ and ECB are scheduled to deliberate on policy this week. After the surprise QQE upgrade in October, no new efforts are expected from the Japanese authority – but in such fractious financial circumstances, it is not impossible. Far more controversial is the ECB’s meeting on Thursday. As the Fed’s largest foil (and the dollar’s largest counterpart), the policy bearings from Europe are especially important. A full-blown quantitative easing program has been heavily suggested by President Draghi and other officials sometime in the first quarter. But, could actually come January 22?

With a Greek election just days after the forthcoming ECB meeting and given the complexity involved with a multi-national stimulus effort; a deferred adoption would seem prudent. However, after the Swiss National Bank (SNB) shocked the market by abandoning its own monetary policy center piece (a 1.2000 EURCHF floor) this past week; there is growing speculation that the move was to preempt an imminent wave of easing and Euro depreciation. As it happens, this could also play a role in catalyzing ‘risk’ trends.

Volatility has been building for months and currencies have been at the forefront of that development – the short-term FX reading is at its highest level in three years. With the SNB’s fireworks this past week, the appetite for safety has risen and its outlets have diminished. Dependency on a global pool of stimulus is driven by new bouts of economic hardship and its limitations are more discernable. If the ECB doesn’t fulfill expectations with the next infusion, it could potentially trigger a correction in European markets that quickly spreads through a susceptible global system.

Forum on trading, automated trading systems and testing trading strategies

Press review

newdigital, 2015.01.17 13:57

USDJPY Fundamentals (based on dailyfx article)

Fundamental Forecast for Japanese Yen: Neutral

• Nikkei (JPN225) Wedging Towards A Big Move
• Price & Time: USD/JPY Topping Out Or Just Consolidating?

USD/JPY may face a larger correction in the week ahead should the Bank of Japan (BoJ) remain confident in achieving the 2% inflation target and endorse a more neutral tone for monetary policy.

Falling energy prices may prompt the BoJ to curb its near-term forecast for inflation, but recent comments from Governor Haruhiko Kuroda suggests that the board will retain its current policy at the January 22 meeting as the central bank head continues to see a moderate recovery in the Japanese economy. After unexpectedly expanding its asset-purchase program at the October 31 meeting, the BoJ may preserve a wait-and-see approach for most of 2015 especially as Japan’s Cabinet approves the JPY 3.5T fiscal stimulus package to encourage a stronger recovery.

With that said, the fresh batch of developments coming out of the BoJ may fail to generate a more bullish outlook for USD/JPY, and the pair remains at risk of facing a larger pullback over the near-term as market participants scale back their appetite for risk. As a result, the dollar-yen correction may continue to take shape ahead of the next Federal Open Market Committee (FOMC) meeting on January 28, but the long-term outlook for USD/JPY remains bullish as Janet Yellen and Co. looks to normalize monetary policy later this year.

In turn, the December low (115.55) remains in focus for USD/JPY as the pair continues to carve a string lower highs & lows in January, and the technical outlook certainly highlights the risk for a further decline in the exchange rate as the Relative Strength Index (RSI) preserves the bearish momentum carried over from the previous month.

Forum on trading, automated trading systems and testing trading strategies

Press review

newdigital, 2015.01.17 14:17

Nikkei forecast for the week of January 19, 2015, Technical Analysis

The Nikkei spent the better part of the week falling, but found a bit of support and the ¥16,500 level, which of course was the scene of the most recent break out to the upside. Because of this, we are not interested in selling this market, but are simply waiting to see some type of supportive candle in order to buy the Nikkei, and perhaps try to grind our way back to the ¥18,000 level. We believe that will probably happen on shorter-term charts such as the daily or for our chart. With that being said, we are bullish long-term of the Nikkei, but recognize it long-term traders may have to put up with a bit more volatility than they normally choose to deal with.

Ultimately, we think we are consolidating between the ¥16,500 level, and the ¥18,000 level above. That is a perfect rectangle essentially, and therefore we do like the idea of buying and not selling because of the fact that it comes after such a strong uptrend. On top of that, the Bank of Japan is working against the value of the Yen, and that ultimately helps strengthen the export market coming out of Japan. In theory, that should help bring the value of the Nikkei up due to exports and the fact that the Bank of Japan is also buying bonds and driving down yields in that market as well, essentially forcing money into the stock market by a domestic traders.

We still believe that the ¥20,000 level will be targeted given enough time, but it’s obviously going to take a bit of work. This is a market that has seen significant upside recently, so that’s not a huge surprise. Ultimately, we feel that this market probably even breaks out above the ¥20,000 level, but with that being such a large, round, psychologically significant number, it’s likely to be one that’s going to be difficult to climb over. Pullbacks going forward should end up being buying opportunities but only if you can handle what is almost undoubtedly going to be a very volatile move.

Forum on trading, automated trading systems and testing trading strategies

Press review

newdigital, 2015.01.17 14:21

USD/JPY forecast for the week of January 19, 2014, Technical Analysis

The USD/JPY pair fell initially during the course of the week but found enough support below to turn things back around and form a hammer like candle. That being the case, it appears that we are ready to grind a bit higher, but we need to get a bit of momentum in order to do so. That being the case, it takes a bit of force to break out, and we think that the market is simply taking a breather after such a massive uptrend. With that, we are buyers but recognize is going to take a bit of time.