Yen weakness continues despite ending of ZIRP

The BoJ has finally ended the ZIRP and raised rate by 25bp on unanimous vote today as “Japan’s economy continues to expand moderately, with domestic and external demand and also the corporate and household sectors well in balance.” And, keeping rates at zero will risk “large swings in economic activity and prices in the future”. However, Yen is not boosted by such news and continues to be under pressure as a 25bp hike is pretty much priced in. Also, chance for another hike this year remains slim as “an accommodative monetary environment ensuing from very low interest rates will probably be maintained for some time” by the BoJ. Rate gap against Euro and Dollar will more likely continue to widen rather than narrow.

There has been increased rumor that PBoC will adjust the Yuan peg on the first anniversary of the revaluation on July 21. However, PBoC head Tang Xu said that exchange rate fluctuations haven’t reached limits in either direction yet and denied China will have a revaluation anniversary. In yesterday’s report, Bank of Canada has lowered its 2007/08 economic growth forecasts and said the there is no need to raise interest rate further.

Market will be turning focus to US data later today. Headline and ex-auto retails sales are expected to increase 0.4% in Jun. Export and import prices are expected to increase 0.4% and 0.3% respectively. U of Michigan sentiment’s preliminary reading is expected to increase from 84.9 to 85.5.


Daily Pivots: (S1) 115.07; (P) 115.29; (R1) 115.59

USD/JPY’s rally from 113.39 resumes today and rise to as high as 116.15 so far. At this point, as long as USD/JPY stays above 115.45 minor support, further rally is expected to follow towards cluster resistance of 116.69 (61.8% retracement of 121.38 to 108.99 at 116.65.) Touching of 115.45 will starts to argue that the whole rise from 113.39 has turned into consolidation after completing a five wave structure and risk retreat to 114.99 level.

The corrective fall from 116.69 has completed with 3 waves down to 113.39, just supported by mentioned cluster support of 113.37 cluster support (61.8% retracement of 111.31 to 116.69 at 113.37 too). The current 5 wave rally could represents resumption of the whole rise from 108.99. However, a firm break above 116.65/69 cluster resistance is needed to confirm and bring further rally to 118.88 resistance. Bouncing off from 116.69 level will indicate USD/JPY is still bounded within consolidation.

Also, the strength and time of the rebound form 108.99 is suggesting that the whole fall from 121.38 have completed with 3 waves down to 108.99 and further rally is still in favor to follow towards 118.88 resistance. As long as USD/JPY’s retreat from 116.69 is contained by this 113.19/37 cluster support, we’ll prefer to treat the price action from 116.69 as sideway consolidation only, that means, further rally is still expected later after finishing the consolidation and bring a break above 116.69 cluster resistance to 118.88 level.

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