Analys från DailyFX
USD/JPY Outlook With Stimulus and Intervention Risk Still in Focus
Talking Points:
– USD/JPY trading above the 100 level as participants brace for Yellen on Friday
– Japan Manufacturing PMI and Kuroda are ahead, but volatility is in question
– A number of fundamental and technical factors take center stage at the moment
The USD/JPY is trading above 100 at the time of writing, apparently finding some support against a backdrop of rising short term US treasury yields.
Indeed, a number of fundamental and technical factors are playing out for the pair at the moment, with further stimulus by the BOJ hinted for September, intervention risk and reduced market depth in focus, as the pair trades near the all-important 100 technical level.
Against this backdrop we will form our outlook and look to find short term trading opportunities using different tools such as the Grid Sight Index (GSI) indicator.
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Looking ahead, the August Nikkei Japan PMI Manufacturing figures are set to hit the wires and expectations are for a slight uptick to 49.5 from the prior 49.3.
Kuroda speaks at BOJ’s Fintech Conference as well, and could provide information about potential stimulus in September, but this might be the less probable outcome given the venue.
With that said, the speech does bring possible BOJ stimulus speculation to the spotlight, emphasizing the many themes in play for the pair.
Clues continue to line-up for the Bank of Japan meeting in September to signal a bold move on the easing front, perhaps weighing on the Yen.
In contrast, Fed officials seem to be leaning more to the hawkish side lately, and with the much anticipated Yellen speech this Friday, the US Dollar might see strength as participants try to anticipate the Fed’s Chair potential rhetoric.
The Yen is trading in proximity of the 100 level versus the US Dollar, which is not only technically important, but also raises speculation on FX intervention by Japanese authorities, further making participants perhaps slightly worry on additional short side Yen.
Indeed, given the fact that participation is low at the moment, it seems that further Yen strength might need to see a real turn lower in risk sentiment (and potentially one that is not a consequence of higher US yields) for the Yen to gain significant traction.
USD/JPY Technical Levels:
Click here for the DailyFX Support Resistance tool
We use volatility measures as a way to better fit our strategy to market conditions. The Yen is expected to be the most volatile currency versus the US Dollar (based on 1-week and 1-month implied volatility measures), perhaps as the market starts to prepare for the BOJ September meeting.
With that said, at this moment in time a catalyst appears lacking. In turn, this may suggest that range bound trading plays might be appropriate in the short term.
USD/JPY 30-Min Chart (With the GSI Indicator): August 22, 2016
(Click to Enlarge)
The USD/JPY is approaching potential support above the 100.50 level at the time of writing, with GSI calculating slightly higher percentage of past movement to the downside in the short term.
The GSI indicator above calculates the distribution of past event outcomes given certain momentum patterns. By matching events in the past, GSI describes how often the price moved in a certain direction.
You can learn more about the GSI here, and download the Trade Station version here.
Further levels of support might be the big 100 level, followed by the area below 99.50, 99 and 98.50.
Possible levels of resistance on a move higher may be the zone below 101, 101.50, 102 and the area above 102.345.
We generally want to see GSI with the historical patterns significantly shifted in one direction, which alongside a pre-determined bias and other technical tools could provide a solid trading idea that offer a proper way to define risk.
We studied over 43 million real trades and found that traders who successfully define risk were three times more likely to turn a profit.
Read more on the “Traits of Successful Traders” research.
Meanwhile, the DailyFX Speculative Sentiment Index (SSI) is showing that about 80.0% of FXCM’s traders are long the USD/JPY at the time of writing. This is an extreme SSI reading, only slightly below the July extreme- levels not seen since 2012.
You can find more info about the DailyFX SSI indicator here
— Written by Oded Shimoni, Junior Currency Analyst for DailyFX.com
To contact Oded Shimoni, e-mail oshimoni@dailyfx.com
Follow him on Twitter at @OdedShimoni
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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