USDJPY – Is the Bottom In?

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USDJPY has been in a three-day selloff driven lower by risk aversion flows, but today the pair has managed to stage a comeback and is closing well above the 106.00 level. The markets appear to have stabilized after yet another wave of Trump rants on twitter and traders will now likely focus on the real business at hand as a series of key US economic reports are about to be released this week.

First on deck will be the ADP data due tomorrow at 8:15 EST and then the ISM Non- Manufacturing. Unless both reports widely miss their mark, they should prove positive for the pair confirming that US economy continues to grow steadily and that the Fed will maintain its rate hike policy for the foreseeable future.

Technically, USDJPY has made inverse head and shoulders bottom, which tends to be a very robust bottoming pattern and looks ready to make another run at the 107.00 figure.

USDJPY – Is the Bottom In?

USDJPY – Is the Bottom In?

Chart Of The Day

Despite OECD leading interest rate, the dollar can’t get any respect. Nowhere is this more evident than in the USDJPY which continues to make yearly lows just as the interest differential is hitting decade-long highs. Part of the problem is the wave of risk aversion that has swept the market as fears of a trade war hang heavily over the buck.

Today, however, the market may have received some good news. US Congress is likely to pass the omnibus funding bill removing the specter of a budget standoff in DC. With government functioning smoothly, attention will turn back to trade, but even here the fears may have been overblown. Although the Trump administration threatened the world with tariffs on steel and aluminum it appears that most of our trading partners will get waivers.

In the meantime, the war with China looks to be highly tactical as well. Although the scope of proposed tariffs is vast at $50 Billion, it not yet clear just how much damage they will do to Chinese producers and China -- which always plays the long game -- may choose to complain, but do little in response, as their desire for trade my trump political considerations. If the Chinese do indeed hold back their gunpowder, the market may see a massive relief rally and USDJPY which has been able to hold 105.00 support despite all the hand-wringing by traders, could quickly verticalize to 108.00 as shorts run for cover.

AUDJPY – Double Bottom at 81.00?

AUDJPY – Double Bottom at 81.00?

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Tomorrow is the FOMC meeting and the market is focused on both the dot plot and the tone of Jerome Powell’s first press conference as Fed Chair. If Mr. Powell remains upbeat about the US economy and maintains a hawkish bias with regard to US monetary policy that is likely to help USDJPY and all the yen crosses, of which AUDJPY remains the strongest.

The pair looks to have carved out a double bottom at the 81.00 figure and while the buyers and sellers are in a tug of war today, any clear signal from the Fed should help it to break out above the 82.00 figure in tomorrow’s trade and set it on a course towards 83.00

Has Kiwi Found a Bottom?

Has Kiwi Found a Bottom?

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While the dollar rebound has been substantial against the majors this week, the kiwi has held up surprisingly well only off about 100 points from the recent swing highs. The pair is benefiting from the inability of the US 10 year yield to push past the 2.95% barrier.

As the highest yielder in the industrialized world, the NZDUSD is likely to hold up relatively well against the buck if US rates go no higher.

In the meantime on the economic front, the market will get a glimpse of the New Zealand Retail Sales with traders anticipating a big jump to 1.2% from 0.2% the period prior. If the number meets or beats forecasts kiwi could head back towards .7400

USDJPY – Surviving the Double Bottom

USDJPY – Surviving the Double Bottom

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USDJPY came close but held the double bottom low of 107.31 in New York trade today. As we noted earlier, the pair was driven lower by a combination of stop running, risk aversion flows and some market uncertainty about Governor Kuroda’s reappointment.

Earlier in the day, Japanese PM Abe stated that he has yet to decide on the reappointment of Mr, Kuroda and that lack of confidence along with a turn in the Nikkei could have contributed to the fall in USDJPY that dragged the pair to fresh six month lows.

Mr, Kuroda is the principal architect of Japan’s reflation policy and is widely respected by market participants. The market is pricing in an 80%-90% chance of a Kuroda reappointment so any hesitation or change of heart by Mr. Abe is sure to cause further turmoil in USDJPY.

For now, the selling flows appear to have ceased and if the pair can climb above the 108.50 level it will likely have put in a solid double bottom at that level. However, a break of 107.00 shows no support until 105.50 so a slide below those key levels could precipitate an avalanche of selling that could quickly push the pair to fresh yearly lows.

USDJPY – Double Bottom?

USDJPY – Double Bottom?

Chart Of The Day

The dollar has been a punching bag for the better part of three months, and just as it appears to have stabilized against other majors, it has yet to find firm footing against the yen. Today’s bout of risk aversion is not helping matters as USDJPY continues to hover below the key 109.00 level.

Tomorrow, however, the market will hear from the FOMC, and while no major policy change is expected a hawkish statement that reaffirms commitment to at least 3 rate hikes in 2018 would go a long way to helping the beleaguered dollar bulls. If USDJPY can clear the 109.50 barrier in the aftermath of the statement, it will have set a higher low double bottom and will have the foundation to rally further.

Can Kiwi Hold its Double Bottom?

Can Kiwi Hold its Double Bottom?

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Tomorrow the RBNZ will have its final rate decision meeting for the year, and while no one is expecting any action on the rate front, traders will watching carefully for any change of posture with respect to monetary policy.

Up to now the primary mandate of the RBNZ has been price stability. That means that it generally concentrated on inflation and left growth issues to fiscal policymakers. However, with the election of a new center-left Labor government, the RBNZ may now be tasked with the dual mandate of growth and inflation. This will be the first time that New Zealand monetary authorities will face the public and reveal their reactions to this proposed policy.

On balance that means the RBNZ should generally be more dovish in its outlook stressing the need for more growth, fretting about deflation and suggesting that the bank will follow a neutral path for the foreseeable future. However, recent data has actually been hawkish with both employment and inflation better than forecast. If the central bank bristles at any suggestion of a dual mandate and makes clear that it intends to maintain its independence than the kiwi could actually pop towards the .7000 barrier.

EUR/AUD Bottom?

EUR/AUD Bottom?

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EUR/AUD Bottom?

We have a number of reasons to believe that EUR/AUD could be near a bottom. Fundamentally we know that the European Central Bank is growing more optimistic about the outlook for the Eurozone economy after recently upgrading to their economic forecasts. In contrast, lower commodity prices and financial sector instability in Australia is making it difficult for AUD to sustain its gains. Technically, EUR/USD has found support above its 1 month low of 1.1110 while AUD/USD appears to have peaked below 0.7650. These 2 counteractive factors has already driven EUR/AUD above 1.4780 and could probably take the pair as high as the 20-day SMA near 1.49.

GBP/USD Bottom to 1.24?

GBP/USD Bottom to 1.24?

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GBP/USD Bottom to 1.24?

Sterling enjoyed its strongest one-day rise versus the U.S. dollar in more than 2 weeks. According to an article in the Independent newspaper and a spokesman for U.K. Prime Minister Theresa May, Article 50 will not be triggered this week. In today’s vote the House of Lords overwhelming opted to overturn the amendments to the Brexit bill. This sends the bill back to the House of Lords who are unlikely to reject the will of the people (although if they do we could see more back and forth). Once both Houses of Parliament agree on the language in the bill, it would be sent for Royal Assent and become law, whereby allowing May to trigger Article 50. So how quickly Article 50 is triggered will be partly determined by how quickly the House of Lords accepts the House of Commons’ decision. If Article 50 is not triggered until next week, we could see a further short squeeze in the oversold currency but uf Prime Minister May suddenly announces the trigger this week, traders can expect a knee jerk breakdown in GBP hat should not last for long as investors realize that it will be months before the terms of exit are agreed to with the E.U. and years before an official exit happens. So in the meantime, it appears that the risk is to the upside for sterling.

GBP031417

Technically, now that GBP/USD has rallied, the next stop should the March highs near 1.2300. Support is at the March 9th low of 1.2134.

Finding a Bottom in USDJPY

Finding a Bottom in USDJPY

Chart Of The Day

Finding a Bottom in USDJPY

There was very little consistency in the performance of the U.S. dollar this past week with the greenback trading lower versus the Japanese Yen, steady against all of the other major currencies except for sterling. On a percentage basis, the changes were small but given how far the dollar had rallied at the start of the week, the pullback was significant. USD/JPY ran as high as 114.95, just a few pips shy of 115 before ending the week below 113. The most phenomenal part of the move was that it was counter to data and Fed speak. Nearly all of this past week’s most important U.S. economic reports beat expectations including consumer prices, retail sales, the Empire and Philadelphia manufacturing surveys, building permits and jobless claims. The only miss was in industrial production and housing starts. Most importantly, Fed Chair Janet Yellen made her intention to raise interest rates very clear but corrective forces emerged as the dollar took its cue from U.S. yields and this misalignment can’t last for long. Unfortunately aside from Fed speak there’s not much on next week’s shortened U.S. calendar to help the dollar. U.S. markets are closed on Monday for Presidents Day. So while we believe that it is only a matter of time before the dollar resumes its rise, the bulls could be hanging back until President Trump announces his “phenomenal tax plan.”

Technically it is premature to call this a bottom in USD/JPY as it has fallen below the 20-day SMA which could be indicative of a trend change. In fact the series of lower highs and lower lows signals the potential for further losses with 111.75 a possible target for the pair. USD/JPY needs to break back above Friday’s high of 113.50 to reverse the negative outlook for the pair.

Double Bottom for Cable?

Double Bottom for Cable?

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The woes of Brexit are well known. UK is in danger of precipitating a “hard” Brexit which would result in its expulsion from the single European market. Yet despite the fears of experts, the economic knock-on effects have yet to materialize. This week the UK economy showed its resilience by posting better than expected data in all three PMI reports. This suggests that UK economy may be stronger than the market thought and that the latest GDP figures could come in at 17-month highs.

Technically the pair has tested the 1.2200 level twice and today’s move back through the 1.2400 figure indicates that the double bottom is in. With 1.2500 now squarely in-view cable may be ready for a short squeeze as late shorts begin to scramble and cover. Topside the pair has no resistance until 1.2700 so there is plenty of scope for upside

EURUSD – Bottom in Place?

EURUSD – Bottom in Place?

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The EUR/USD which made a near 300 pip round trip in post Italian referendum trade yesterday, first dropping to a low 1.0504 and the spiking to 1.0798, was much calmer today but remained near the two day highs and within striking distance of the 1.0800 figure.

yesterday’s price action suggests that the pair may have made a near term bottom and could continue to squeeze higher even possibly towards the 1.1000 figure especially if ECB President Mario Draghi offers no definitive calendar extensions to the QE program.

Ultimately the euro may be headed to parity as the policy divergence between the Fed and the ECB begins to kick in. But for now the market is still looking for the Fed to affirm its intention to tighten continuously in 2017 rather than the one-and-done December hike that is already priced into the market. Meanwhile, if the ECB simply sticks to its current QE targets and doesn’t extend or expand the program, the short squeeze in the EURUSD could continue as expectations are adjusted on both sides of the trade.

For now the 1.0500-1.0550 level is a firm bottom while 1.0900 is the nearest term top for the pair.