Yen Headed Lower Ahead of BoJ Announcement
The Japanese yen remains weak against dollar and euro today. On the other hand, dollar recovers mildly against Euro and Sterling but is still bounded in tight range. Swiss Franc was sent lower after weaker than expected Combined PPI which rose dropped -0.2% mom, rose 2.2% yoy comparing to consensus of -0.1%, 2.3%. Canadian dollar remains firm against the greenback after CPI data which came in inline with consensus.
With no important indicator to be released from US today, markets will likely remain quiet as traders prepare for BoJ rate announcement in the coming Asian session. Aussie traders will also pay attention to RBA Governor Steven’s testimony to Parliamentary Committee.
From an earlier report:
Yen weakens further against Euro and dollar today as BoJ starts a two-day monetary policy meeting. More comments from government officials today as Japanese Finance Minister Koji Omi today said it’s important central bank policy should support economic growth. Prime Minister Shinzo Abe has urged BoJ to “take into consideration all factors including risks” and make an “appropriate” decision yesterday. Opinion on whether BoJ will announce a rate hike tomorrow is divided. On the one hand, considering the current inflation outlook, Japan is still close to deflation and the ruling LDP will continuous to pressure BoJ into delaying further rate hikes. On the other hand, based on the background of a 6-3 vote in Jan’s meeting to keep rate unchanged, last week’s strong Q4 GDP data could have shifted one or two voting member’s decision and that will be critical to the voting results. But still, we’d like to emphasize again that markets are building stronger expectation on this BoJ meeting and should BoJ disappoints, further yen selling will be triggered. Moreover, even if BoJ does announce a hike tomorrow, there could still be ‘sell-on-news’ selling in yen. Hence, we believe risk is on the downside.
Technically speaking, EUR/JPY’s strong rebound from 156.21 has now reached 158 level. Break of previous mentioned 157.27 support turned resistance indicates that the fall from record high of 158.88 has completed at 156.21, slightly ahead of 161.8% projection level at 156.14. The corrective three wave structure of the fall from 158.88 to 156.14 suggest that further rally is still in favor in EUR/JPY. Note that bearish divergence conditions in daily MACD and RSI and the price actions from 153.67 suggests that EUR/JPY could be forming a diagonal triangle, i.e. a medium term top is around the corner. But, if this interpretation is correct, EUR/JPY should at least make a new record high before medium term reversal. Hence, this is supporting the view that risk is on the upside in short term.
Hence, going into the picture in USD/JPY, while some traders viewed the price actions in USD/JPY from 122.17 as doubt top formation, we’re skeptical about this idea. Instead, we incline to the case that it’s sideway consolidation and with 38.2% retracement level met, another rally should be around the corner.
USD/JPY
Daily Pivots: (S1) 119.28; (P) 119.49; (R1) 119.78;
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USD/JPY’s rebound from 118.97 continues today as expected and is now pressing 4 hours 55 EMA (now at 120.31) and 120.35 resistance. At this point, further rise is still in favor to follow as long as USD/JPY stays above 119.56 support. As discussed before, since we’re treating price action from 122.17 as consolidation to rally from 114.41 only, break of 120.35 will indicate fall from 122.05 has already completed and bring retest of 122.17 high.
Meanwhile, below 119.56 will suggest recovery has completed and should bring retest of 118.97 low. Break will encourage further fall towards 161.8% projection of 122.17 to 119.94 from 122.17 at 118.44. But downside should be contained there and above 117.96 support and bring rebound.
In the bigger picture, with medium term up trend from 108.99 remains in force, favor is still on the case that rise from 108.99 represents resumption of long term up trend from 101.66. The preferred interpretation of the rise from 108.99 is that the first move has completed at 117.87. Subsequent price actions to 113.95, 119.86 and 114.41 is treated as interim consolidation that’s skewed upward by the rise to 119.86. Rise from 114.41 is treated as resumption of the whole up trend. With this interpretation, next upside target will be 100% projection of 108.99 to 117.87 from 114.41 at 123.29.
However, decisive break of 117.96 support will rise some doubt about this interpretation In such case, a deeper decline should follow to retest medium term rising channel (now at 116.62) first. A break of this channel will swing favors back to the case that another medium term decline should be seen towards 108.99 low before completing the whole long term consolidation that started at 121.38.
Read full report (EUR/USD, GBP/USD, USD/CHF, USD/JPY) here.
Shing-Ip Tsui is the founder and CEO of
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