usdjpy short term uptrend remains intact as japan cpi looms 2694142017

In the past three days since 27 June 2017, the USD/JPY has managed to buck against the general USD weakness trend seen across all major […]

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By :  ,  Financial Analyst

In the past three days since 27 June 2017, the USD/JPY has managed to buck against the general USD weakness trend seen across all major currency pairs. Primary reasons as follow:

  • Bank of Japan (BOJ) Governor Kuroda has been reluctant to give any guidance on BOJ’s exit plan from its on-going massive QQE and yield curve control programmes. In contrast, Eurozone (ECB), U.K (BOE) and even Canada (BOC) central bankers have signalled in their respective public speeches that “low interest rates” environment are coming to an end and their respective countries’ borrowing costs are set to rise.
  • Improving risk appetite in risk assets such as oil and equities. After a 23% plunge in the WTI crude oil from its peak of 55.24 per barrel seen in January 2017, the front-month WTI (July) futures contract has stabilised at the 43.00/42.00 range support with short-term technical elements that advocate for a further potential corrective rebound towards the short-term resistances at 45.95/46.50 follow by 47.00 next. The recent sell-off seen in U.S. technology shares on Tues, 27 June had staged a remarkable recovery yesterday, 29 June 2017 where the S&P Technology sector ETF (XLK) had erased off all its initial losses and rallied by 1.6%. From a sector rotation perspective, leadership can be also seen in the “risk sensitive” Financials where the S&P Financials sector ETF (XLF) had rebounded by 2.9% from its 23.90 key medium-term pivotal support reinforced by yesterday’s approval from U.S. Federal Reserve that had allowed the 34 largest U.S. banks to use their extra capital for stock buybacks, dividends and other purposes beyond being a cushion against financial catastrophe. This latest round of approval offset the negative impact caused by a flattening Treasury yield curve on banks’ net interest margins.

Later today, 29 June at 2330 GMT, we will have Japan CPI data for May where the consensus is set at 0.4% y/y for core CPI ex fresh food, a slight increase from 0.3% y/y seen in April. Given the recent lacklustre retail sales for May which only rose by 2% y/y (below consensus of a 2.6% y/y increase) from 3.2% y/y seen in April, we expect the core CPI ex fresh food to come in between 0.4% y/y to 0.3% y/y.  Despite a potential 5th consecutive months of positive y/y growth since January 2017, core CPI still has a lot more to catch up to reach the 2% inflation goal set by BOJ. Thus, it should not alter the recent short-term upward trajectory of USD/JPY in place since 15 June 2017.

Now, let’s take a look at USD/JPY from a technical analysis perspective.

Short-term technical outlook on USD/JPY

USDJPY_daily (29 Jun 2017)

USDJPY_1 hour (29 Jun 2017)(Click to enlarge charts)

Key technical elements

  • Since its 108.80 minor swing  ow of 15 June 2017 (also the gap support left after the outcome of the first round of the French presidential election seen on 24 April 2017), the USD/JPY has started to evolve within a short-term bullish ascending channel.
  • The aforementioned short-term ascending channel’s support is now at 112.10.
  • The daily RSI remains positive above its corresponding support at the 48% level. In addition, the shorter-term (1 hour) Stochastic oscillator has started to inch upwards and still has room to manoeuvre to the upside before it reaches an extreme overbought level. These observations suggest that both medium and short-term upside momentum of price action remain intact.
  • The next significant short-term resistance stands at 113.00/113.20 which is defined by minor congestion area of 15 May/17 May 2017, the median line of the short-term ascending channel and a Fibonacci cluster (see 1 hour chart).
  • The significant short-term support stands at 111.80.
  • In the medium-term, the USD/JPY remains in a range configuration with its upper limit/resistance at 115.00/116.20 (see daily chart).

Key levels (1 to 3 days)

Intermediate support: 112.10

Pivot (key support): 111.80

Resistance: 113.00/113.20

Next support: 110.75


 As long as the 111.80 short-term pivotal support holds, the USD/JPY is likely to shape another potential minor degree impulsive upleg within its on-going uptrend to target 113.00/113.20 next.

On the other hand, a break below 111.80 should invalidate the short-term uptrend to open up scope for a minor corrective decline towards the next support at 110.75 (former 05 June/09 June 2017 minor swing high area & close to the 50% Fibonacci retracement of the current rally from 15 June 2017 low).

Charts are from eSignal


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