Analys från DailyFX
Japanese Yen Rallies as CPI Shows ’Abenomics’ Working; USD/JPY Under ¥99
ASIA/EUROPE FOREX NEWS WRAP
The Japanese Yen has emerged as the top performer for the second consecutive day as further evidence that ‘Abenomics’ and the Bank of Japan’s aggressive easing strategy are starting to have their desired impact: higher inflation. Japan has struggled with deflation for the past two decades, and it is believed that rising prices could stoke a broader economic recovery.
Accordingly, with Japanese core inflation rising at its fastest yearly rate (+0.4%) since November 2008 (+1.0%), the policies seem to be having a faster than anticipated impact; and this in turn dampens the likelihood that additional aggressive easing measures are coming.
Considering that ‘Abenomic’s and the BoJ’s monetary policy had weakened the Yen by -12.63% against the US Dollar through yesterday’s close, if no further measures are likely in the near-term, a Yen rebound, from a fundamental perspective, was all but guaranteed.
With the USDJPY trading under ¥99.00, and the Dow Jones FXCM Dollar Index (Ticker: USDOLLAR) thus trading to fresh monthly lows, intermarket dynamics have seen a ‘risk-off’ theme take hold of investors overnight (see Currency Strategist Ilya Spivak’s commentary in the link below). However, the scope of USDJPY declines may not be complete with the final July US U. of Michigan Confidence report due today – rising mortgage rates are already putting pressure on the housing market, which is reducing homeowners’ equity.
Read more: Japanese Yen Gains as Liquidation Hits Asian Stock Exchanges
Taking a look at European credit, slight downside pressure in peripheral markets has held the Euro at bay versus the US Dollar, which is down solidly on Friday. The Italian 2-year note yield has increased to 1.561% (+0.8-bps) while the Spanish 2-year note yield has increased to 1.855% (+1.4-bps). Likewise, the Italian 10-year note yield has increased to 4.406% (+1.3-bps) while the Spanish 10-year note yield has decreased to 4.612% (-0.9-bps); higher yields imply lower prices.
RELATIVE PERFORMANCE (versus USD): 11:00 GMT
JPY: +0.76%
AUD: +0.32%
CHF: +0.17%
GBP:+0.16%
CAD:+0.09%
EUR:+0.01%
NZD:-0.01%
Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): -0.23% (-0.98% prior 5-days)
ECONOMIC CALENDAR
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TECHNICAL ANALYSIS – CHART OF THE DAY
USDJPY – The USDJPY undercut trendline support off of the February 25 (Italian elections) and April 4 (BoJ announces massive easing program) lows, which is important considering their historical importance this year. Likewise, the uptrend off of the June 13 and July 11 lows cracked, and now a slight descending channel off of the July 8 and July 19 highs is guiding price action.
With the pair coming into a congestion zone over the past several months, further losses may be limited as buyers look to reenter the market in a familiar price range. As noted above, should US economic data on Friday disappoint, trade to the lower end of the range support at 96.90/7.00 should not be ruled out.
— Written by Christopher Vecchio, Currency Analyst
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
What’s inside:
- EURUSD broke the ‘neckline’ of a bearish ‘head-and-shoulders’ pattern, April trend-line
- Resistance in vicinity of 11825/80 likely to keep a lid on further strength
- Targeting the low to mid-11600s with more selling
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Coming into last week we pointed out the likelihood of finally seeing a resolution of the range EURUSD had been stuck in for the past few weeks, and one of the outcomes we made note of as a possibility was for the triggering of a ’head-and-shoulders’ pattern. Indeed, we saw a break of the ’neckline’ along with a drop below the April trend-line. This led to decent selling before a minor bounce took shape during the latter part of last week.
Looking ahead to next week the euro is set up for further losses as the path of least resistance has turned lower. Looking to a capper on any further strength there is resistance in the 11825-11880 area (old support becomes new resistance). As long as the euro stays below this area a downward bias will remain firmly intact.
Looking lower towards support eyes will be on the August low at 11662 and the 2016 high of 11616, of which the latter just happens to align almost precisely with the measured move target of the ‘head-and-shoulders’ pattern (determined by subtracting the height of the pattern from the neckline).
Bottom line: Shorts look set to have the upperhand as a fresh month gets underway as long as the euro remains capped by resistance. On weakness, we’ll be watching how the euro responds to a drop into support levels.
For a longer-term outlook on EURUSD, check out the just released Q4 Forecast.
EURUSD: Daily
—Written by Paul Robinson, Market Analyst
You can receive Paul’s analysis directly via email bysigning up here.
You can follow Paul on Twitter at@PaulRobinonFX.
Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.
EURUSD: Retail trader data shows 37.3% of traders are net-long with the ratio of traders short to long at 1.68 to 1. In fact, traders have remained net-short since Apr 18 when EURUSD traded near 1.07831; price has moved 9.6% higher since then. The number of traders net-long is 15.4% lower than yesterday and 16.4% higher from last week, while the number of traders net-short is 0.4% higher than yesterday and 10.5% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURUSD prices may continue to rise. Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed EURUSD trading bias.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.
GBPUSD: Retail trader data shows 38.2% of traders are net-long with the ratio of traders short to long at 1.62 to 1. In fact, traders have remained net-short since Sep 05 when GBPUSD traded near 1.29615; price has moved 3.4% higher since then. The number of traders net-long is 0.1% higher than yesterday and 13.4% higher from last week, while the number of traders net-short is 10.6% lower than yesterday and 18.3% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBPUSD prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current GBPUSD price trend may soon reverse lower despite the fact traders remain net-short.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
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