Brocker.Org: USD/JPY Eyes 2017 Opening Range as Bets for June Rate Hike Hold

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Talking Points:

NZD/USD Rebound Stalls Ahead of December High (0.7239); NZ 4Q CPI on Horizon.

USD/JPY Eyes Monthly Opening Range as 112.50 Offers Near-Term Support.

DailyFX

Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

NZD/USD

0.7165

0.72

0.7118

42

82

NZD/USD Daily

NZD/USD Daily Chart

Chart – Created Using Trading View

  • The near-term recovery in NZD/USD appears to be stalling ahead of the December high (0.7239) as the pair starts to carve a series of lower highs & lows, while the Relative Strength Index (RSI) seems to be responding to the bearish formation carried over from the previous year; broader outlook for kiwi-dollar remains tilted to the downside as the pair continues to operate within the descending channel from September.
  • Nevertheless, New Zealand’s 4Q Consumer Price Index (CPI) on tap for the week ahead may heighten the appeal of the higher-yielding currency as the headline reading is projected to climb an annualized 1.3%, which would mark the fastest pace of growth since 2Q 2014; heightening price pressures may push the Reserve Bank of New Zealand (RBNZ) to change its tune for monetary policy, and Governor Graeme Wheeler may show a greater willingness to move away from the easing-cycle at the next interest rate decision on February 9 as ‘annual inflation is expected to rise from the December quarter, reflecting the policy stimulus to date, the strength of the domestic economy, and reduced drag from tradables inflation.
  • May see the near-term recovery in NZD/USD unravel as it fails to test the December high (0.7239), with a move/close below 0.7100 (38.2% expansion) opening up the downside targets; first region of interest comes around 0.7040 (50% retracement) followed by 0.6950 (38.2% retracement).

Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

USD/JPY

115.37

115.53

114.4

72

113

USD/JPY Daily

USD/JPY Daily Chart

Chart – Created Using Trading View

  • USD/JPY may continue to retrace the decline from earlier this month following the failed run at the Fibonacci overlap around 112.40 (61.8% retracement) to 112.50 (38.2% retracement); may see a move back towards the monthly opening range as the dollar-yen reverses course and being to carve a series of lower highs & lows, but the broader outlook remains clouded as a double-top formation appears to be panning out, while the RSI fails to preserve the upward trend carried over from the summer months.
  • With Fed Fund Futures still highlighting a greater than 60% probability for a June rate-hike, the deviating paths for monetary policy should keep the long-term outlook tilted to the topside as Chair Janet Yellen argues the central bank is close to achieving its dual mandate, but risk sentiment may continue to influence near-term price action as the dollar-yen exchange rate and the Nikkei 225 highlight similar dynamics; will continue to watch the newswires as the central bank head is scheduled to speak again going into the end of the week.
  • USD/JPY may stage a larger recovery as the pair works its way back above former-support around 114.60 (23.6% expansion), but the downward trending channel carried over from December may keep the pair within a broad range amid the mixed price action across the global benchmark equity indices.

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DailyFX SSI

  • The DailyFX Speculative Sentiment Index (SSI) shows the retail crowd have flipped net-short USD/JPY ahead of the last-full week of January, while trades remains net-short NZD/USD since January 12.
  • USD/JPY SSI stands at -1.12 as 47% of traders are long, with long positions 17.3% lower from the previous week, while open interest is 2.0% below the monthly average
  • NZD/USD SSI sits at -1.51 as 40% of traders are long, with long positions 14.7% lower from the previous week as open interest stands 8.8% below the monthly average.
  • The flip in USD/JPY suggests the retail crowd is attempting to fade the recent rebound in USD/JPY especially as short-positions climbed 10.4% from the previous week, and the SSI may serve more as a contrarian indicator over the coming days should the ratio highlight a further shift in positioning and push deeper into negative territory.

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— Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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