Will USD/JPY Hit 110? Not so Fast.

Will USD/JPY Hit 110? Not so Fast.

Chart Of The Day

Will USD/JPY Hit 110? Not so Fast.

After rising for 6 days straight, USD/JPY finally consolidated today above 109. The decline in Treasury yields prevented USD/JPY from rising but U.S. data was better than expected with jobless claims falling to its lowest level in 49 years. Durable goods orders also rose 2.6%, against expectations for 1.6% increase while the trade deficit shrank to -$68B from -$75.9B. There are 2 event risks in the next 24 hours that will affect how USD/JPY trades. Tonight, the Bank of Japan has a monetary policy announcement. The BoJ firmly believes in the need for easy monetary policy so no changes are expected but they will be releasing their latest economic projections including their first forecasts for 2020. Tomorrow, first quarter U.S. GDP numbers are scheduled for release and while investors are positioning for a strong report, the drop in non-defense capital goods orders, the stagnation in durable goods ex transportation, weakness in retail sales at the start of the year points to a softer release. Therefore if GDP falls short of expectations, we could see end of week profit taking in the greenback.

Technically, USD/JPY has broken above the 100-day SMA and 50% Fibonacci retracement of June to December 2016 rally. However as shown in the chart, the rally stopped right at the 100-week SMA near 109.50. This is a significant resistance level that USD/JPY needs to break in order to make a run for 110. If it fails here, support is at 108.75 and a break below that level could see the pair slip all the day down to 108.

USDJPY to 110?

USDJPY to 110?

Chart Of The Day

The week kicked off with renewed losses for USD/JPY. Although pending home sales increased more than expected, the Chicago PMI index fell sharply, reminding everyone about the troubles plaguing the U.S. economy. The Fed intends to raise interest rates but data still doesn’t support their views and in order for that sentiment to change, Friday’s non-farm payrolls report needs to be exceptionally strong. Whether that’s true or not remains to be seen but traders will be skeptical up until the last moment before payrolls are released. For this reason, USD/JPY is eyeing 110, a level that could be broken ahead of the jobs report. Personal income, spending and the ISM manufacturing index are scheduled for release on Tuesday but none of these reports are significant enough to change the market’s views for December tightening – only Friday’s jobs number is capable of doing and even that is questionable. Technically, having broken below all of the major moving averages, USD/JPY looks prime for a test of 110, a level that we believe could break ahead of NFP. As long as the pair remains below 112.20, the downtrend remains intact

USDJPY – 110 or 108?

USDJPY – 110 or 108?

Chart Of The Day

USDJPY – 110 or 108?

It says a lot when consistently softer economic data can’t bring down a currency. The U.S. dollar refuses to fall despite clear evidence of a slowdown in the recovery. We’ve seen consumer spending drop for the second month in a row, consumer price growth decline for the first time in more than a year, job growth slow to 98K in the month of March and manufacturing activity in the NY region almost grind to a halt in April. This deterioration drove the odds of a June rate hike down to 47% and the chance of tightening in September down to 67.5%. To put this into perspective, at the beginning of the month, the market saw an 80% chance of a rate hike in September. With this in mind, the U.S. dollar and U.S. rates should be trading lower but instead of breaking 108, USD/JPY held support and even broke above 109 intraday. It can be argued that the greenback is taking its cue from yields but on Tuesday, when 10 year rates hit 5 month lows, USD/JPY drifted only slightly lower. We can pound the table about how the dollar should be trading lower but its obviously not and that is a reflection of the bids below 108. On a technical basis, USD/JPY found support right at the 50-week simple moving average.

Technically, USD/JPY is toying with the 200-day SMA on the daily chart. For the time being 109.20 is the level to watch. If USD/JPY breaks above 109.20, it should rise quickly to 110. However the longer it holds below this level and the lower the lows, the greater the chance of a move back down to the 50-week SMA near 108.30.

USDJPY Back to 110?

Chart Of The Day

The price action in the currency and the bond market today tell us that investors believe data and not the Fed. The FOMC minutes were hawkish which is not a surprise considering that the central bank raised interest rates for the first time this year last month. Fed officials talked about lower downside global economic risks, greater upside in fiscal policy risk and described the January consumption slowdown as temporary. These optimistic views and their concern about high stock prices confirm that further tightening is on the way. Yet investors sold rather than bought dollars after the report because nothing in the Fed minutes reflected an urgency to raise interest rates. As a result U.S. yields nosedived, taking USD/JPY down with it as investors turned their focus to the meeting between U.S. President Trump and Chinese President Xi and Friday’s non-farm payrolls report. Data wise, this morning’s economic reports raised red flags for Friday’s non-farm payrolls report. While private payroll growth increased strongly according to ADP, job growth in the service sector fell to its lowest level since August. As the employment component of non-manufacturing ISM tends to have a very strong correlation with the broader release, investors sold dollars aggressively after seeing that Fed minutes contained nothing to alter the market’s expectations for tightening. We expect the dollar to continue to trend lower particularly against the Japanese Yen.

Politically, there’s a lot at stake at tomorrow’s summit between the leaders of the world’s two largest economies. Before the Summit, President Trump set the tone by saying this will be a difficult meeting. There are also many political issues at hand like the one China policy and North Korea but Trump has not been shy about his views on China’s unfair currency and trade policies. The BEST case scenario is that both leaders will shake hands, smile and talk about a stronger relationship. Unfortunately, they are walking into the Summit with a strained relationship as Trump rarely misses the opportunity to point fingers at China for its unfair trade practices having once described China as the world champion of currency manipulation and devaluation. FX traders should be nervous because Trump is unpredictable and it is not clear how hard he will press Xi. If the meeting ends with the same awkward press conference as the one held with German Chancellor Merkel, the markets won’t be happy and risk appetite could suffer. This would mean further losses for USD/JPY and other high beta currencies.

USDJPY040517
Technically, the reversal in USD/JPY today puts the pair at risk of making another run for 110. The 4 hour chart shows resistance at the 50-period SMA near 111.00 and support at last month’s low of 110.07.

What Could Take USD/JPY to 110?

What Could Take USD/JPY to 110?

Chart Of The Day

What Could Take USD/JPY to 110?

USD/JPY fell sharply at the end of last week on the back of falling U.S. rates. Data was mixed with personal spending and income growth slowing but manufacturing activity in the Chicago region accelerating. Looking it will be a big week for the U.S. dollar with ISM reports, minutes from the most recent FOMC meeting and nonfarm payrolls scheduled for release. If the minutes confirm that the Fed is in no rush to raise interest rates again, the dollar could retreat but if they contain a general tone of optimism, we could see 113 in USD/JPY. With that in mind, NFPs is the most important piece of data to watch because economists are looking for slower job growth. If they are right, it could be a nail in the coffin for the dollar sending USD/JPY to 110

Technically, 112 is near term resistance in USDJPY but there’s a lot of resistance between 112.75 and 113. There’s no support on the other hand until 110.

AUD/NZD 1.10 Top?

AUD/NZD 1.10 Top?

Chart Of The Day

AUD/NZD 1.10 Top?

1.10 is a big round number and it is tempting to call a top for AUD/NZD under this technically and psychologically significant level. On a technical basis, this also represents the 50-period SMA on the weekly chart but AUD/NZD is coming from a low base and could easily shoot to 1.12. Fundamentally, there are sound reasons why AUD is outperforming NZD. The Reserve Bank of Australia has been relatively optimistic and next week’s minutes should reflect that whereas the Reserve Bank of New Zealand has more to be worried about. The RBNZ meets next week and we think they will attempt to talk down the currency. Since their last meeting in February, consumer spending has fallen, GDP growth slowed, the trade deficit widened while dairy prices declined. There was some strength in the services and manufacturing sectors but with the currency so strong, we don’t think that will be enough to ease the central bank’s concerns. As a result, NZD could fall on RBNZ, which makes a failure at 1.10 far from certain.

USDJPY to 110?

USDJPY to 110?

Chart Of The Day

USDJPY to 110?

The big story in the foreign exchange market today was USD/JPY and its quick slide below 112. The currency pair has fallen 5 out of the last 6 trading days with the latest wave of weakness taking USD/JPY to its lowest level since November. We can identify at least 3 reasons for the persistent decline in the currency – first and foremost investors are nervous about the economy and President Trump’s policies. Friday’s jobs report failed to impress with wage growth slowing and the unemployment rate rising. More importantly, Trump has been on a campaign to pressure other countries to strengthen their currency which effectively means he wants the dollar to weaken. Secondly, ten year yields fell 5bp today, pushing the dollar lower and when 112, an important support level for USDJPY broke the currency pair extended its losses quickly. The problem is that data has not been strong enough to convince the market that the Federal Reserve will raise interest rates in March and to offset the President’s push for a lower currency. Stocks are also beginning to roll over and if the slide deepens, it would fuel risk aversion that could turn into additional pressure on USD/JPY. With no major U.S. economic reports scheduled for release this week, we look for USD/JPY to extend its losses towards 110. The November 28th low near 111.36 could provide some support but we continue to look for losses beyond that level.

Technically the monthly chart provides a clearer picture of the outlook for USD/JPY. Having broken below the 23.6% Fibonacci retracement of the 2011 to 2015 rally which happens to coincide with the 23.6% Fib of the June to December 2016 rise, the currency appears poised for a stronger move lower. There is some support between 111.36 and 111.25 but the real significant support level is down at 110.00 and as long as USDJPY remains below 114, the downtrend remains intact.

USDJPY to 110?

USDJPY to 110?

Video

USDJPY to 110?

USDJPY has been on a tear, rising more than 700 pips from its low on election night. The gains continued to build on Monday with the currency pair taking out 108. While we had been looking for the dollar to strengthen further ahead of Yellen’s testimony on the economy, we did not think that it would happen so quickly before a deeper pullback. Ten year Treasury yields rose as high as 2.3% intraday, the best level this year and played a big role in pushing USD/JPY higher.

Technically, the rally in USD/JPY today is finding resistance right below the 50 and 100-period SMA cross on the weekly chart (see below) but the pair’s uptrend is far from over. It has broken above the 200-day SMA and more importantly Trump’s victory was a game changer for the dollar and stocks. These fundamental forces have not run their course and for this reason the dollar’s rally isn’t over. Hitting 110 is not only possible but likely for USD/JPY but rather than chase the move it may be smarter to wait for a pullback towards 107. U.S. retail sales are scheduled for release tomorrow and it’s a tough call because while wages are on the rise, confidence has been low, employment growth slow and gas prices have fallen.

EURO Back to 1.10?

EURO Back to 1.10?

Chart Of The Day

What’s bad for the European Union is also bad for the euro because if the EU can lose its most important member, the Eurozone could start losing its weakest links. This strong sense of nationalism could spillover to other countries especially those that are struggling with euroskeptics and political fragmentation. In the long run, Brexit makes the Eurozone a more attractive destination for investments but in the near term, the uncertainty has caused Eurozone peripheral bond yields to spike, bank shares to plunge, credit default swaps to widen and the euro to weaken. Right wing euroskeptics in the southern half of the Eurozone have already begun to call for their governments to hold their own referendums and if the European Union unravels, so could the Eurozone. Spain has a general election this weekend and this is the first test for the euro. If Podemos, the antiausterity group emerges as the second largest party, it would raise concerns about support for the euro and European integration. Two other forces also hang over the currency, which are risk aversion and possible ECB easing. In the not so distant past, ECB President Mario Draghi said they stand ready to do “whatever it takes” to maintain financial and price stability. While the FTSE100 dropped only 3.15%, the DAX fell 6.8% and the CAC fell 8.04%. If peripheral bond yields rise further or equities experience steeper losses, the ECB could step in with more stimulus which would be negative for the euro.

Technically, now that EUR/USD has broken below the 61.8% Fib retracement of 2000 to 2008 rally, we should be headed back down to support at 1.1000. On the daily charts, the 200-day SMA at 1.1100 provides short term support but this level was cleared in Friday’s session. 1.1215, the 61.8% Fib is resistance and a great level to sell into.