USDJPY, H4
Global trade tensions remain in focus and there is little hope that EU President Juncker, who is set to meet with President Trump in Washington, will come back with a deal that would settle the tensions. Brexit also continues to loom on the horizon and the UK’s latest blue print for a deal is unlikely to be just waved through in Brussels, while given May’s shaky position at home there remain questions as to whether any deal that is being struck between negotiators will actually be passed in the UK. Against that background, many are effectively preparing for a hard Brexit, something that will hurt economies on both sides of the Channel.
The Yen has rallied concomitantly with JGB yields after a report by Reuters that BoJ is in “preliminary” discussions to tweak its stimulus program to make it more sustainable, according to sources cited. This comes in the lead up to the central bank’s July 30-31 policy, where BoJ is widely anticipated to downgrade inflation forecasts. The ideas reportedly include changing the yield-curve control to allow for a more natural rise in long-term interest rates, and operation changes to the way BoJ buys government bonds and ETFs with the aim of increased market liquidity and less price action disortion. The details are still vague, and BoJ will be wary of tightening at the policy just when inflation projections are revised lower.
USDJPY dipped to a two-day low of 110.75, marking today its 4th consecutive down session, and EURJPY and other Yen crosses saw a similar price action. Another Yen support factor has been a backdrop of wobbling global stock markets amid ongoing concerns about trade protectionism.
The broader Yen outperformance in addition to Dollar weakness, pushed USDJPY into the lower Bollinger bands pattern, with the next support coming at the confluence of the upchannel trendline since March 23, the S2 from day’s pivot analysis and also the 50-Day SMA, which has been strongly supporting the pair for the past 4 months. Despite the big sell-off since Thursday the technical indicators suggest that the decline is likely to come to an end shortly. RSI is slightly below 50, at 47, while MACD is at the positive area since April 10 and it is currently moving slightly below signal line. Oppositely, Volume indicator decreases since the end of May, suggest that the upside channel is running out of positive momentum. Next Support is set at 110.55 (50-Day SMA) and 110.10 (200-Day SMA), while Resistance comes at 111.18-111.35 area.
In the 4-hour chart, both RSI and MACD retain negative outlook of the pair, while the Bollinger Bands pattern is being extended to the downside. However the strongly negative intraday picture is in a doubt as the last session closed with a doji candle, suggesting that we might see a correction to the upside within the day.
Hence as the pair is moving below all 3 moving averages, in the wider picture only a break above the 50% recovery level since Thursday’s peak, at 111.97, could turn the view of the pair from negative to positive.
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Andria Pichidi
Market Analyst
HotForex
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