Yen gains strength as markets react to BoJ reduced purchases 09/01/2018 #HIGHTRADE
With a quiet start to the week, markets are searching for direction again. There may be some direction coming on the yen though with the Bank of Japan reducing its month on month net assets for the first time since its QQE program began (back in late 2012). The yield on JGBs has started to pull higher and forex markets are now reacting, driving some yen strength this morning. There is also a hint of a move on the euro which has just started to come under some corrective near term pressure as a degree of profit taking has pulled EUR/USD back from a test of the key September highs. Bund yields have just slipped a touch in the early days of 2018 and with Treasury yields pulling higher (the 10 year yield is again looking at 2.50%) the yield spread of Bunds/Treasuries has widened again. This is leaving mixed moves on the US dollar in the G3 pairs. It is also interesting to see that Raphael Bostic, the Atlanta Fed President and voting member in 2018 was advocating just two Fed rate hikes in consideration of the sluggish inflation data. This could weigh a little on the dollar. There is little economic data again to impact on forex today, so trading could continue to be a little quiet before the more important releases come through later in the week.
After a strong start to the year last week, traders on Wall Street took a breather yesterday resulting in a day of consolidation. The S&P 500 still managed to close +0.2% higher at 2747 whilst Asian markets were also positive, although European counterparts are cautiously higher in early moves. In forex, the mixed outlook on the dollarcontinues today with the yen being the main outperformer. In commodities, gold continues to consolidate although it is marginally lower by $2. Oil has again jumped to new two and a half year highs and remains very strong.
Once more there is very little for markets to be taking too much notice of in the economic calendar today. The only real interest comes in the US JOLTS jobs openings which are at 1500GMT and are expected to increase from 6.05m (from 6.00m last month).
Chart of the Day – EUR/JPY
Is the yen on the brink of recovery? Euro/Yen has posted an “Evening Shooting Star” three day candlestick pattern yesterday which is a strong negative reversal pattern that puts a more corrective outlook on the chart. One strong bullish candle up followed by Friday’s shooting star and then yesterday’s strong bear candle down. This comes as the RSI peaked at just under 70 last week (similar to the peak of the September rally). The Stochastics have also crossed lower and close to confirmation of a near term sell signal, whilst the MACD lines are also close to a near term corrective signal. At the least the move looks likely to be part of an initial consolidation which could see the market pulling back to the key breakout at 134.50 again. The key support near term is the reaction low at 133.90 and a close below there would open up for a deeper correction and something more than just a consolidation. A confirmation negative candle today would add to the immediate corrective outlook. Resistance at 136.62 from Friday’s high is now key, with yesterday’s lower high at 136.30 and first 135.90.
Since the market has settled in the wake of Friday’s payrolls report there has been a burgeoning sense of a dollar recovery. This has seen the market pull decisively back from a test of the key September high of $1.2092 and has now posted two successive negative candles. This is the first time in over three weeks this has occurred and begins to put a near term corrective bias to the chart. The closing breach of initial support at $1.2000, which had been defended throughout last week, is interesting, whilst the support of a three week uptrend has also been broken. This now brings the market back to the breakouts from the old November/December highs which are supportive initially around $1.1940/$1.1960 with subsequent support around $1.1900. Momentum indicators have moved into reverse now with the Stochastics posting bear cross and the MACD lines also beginning to roll over. If the RSI went below 50 it would give a sense of continued correction that may pull a test of the two month uptrend at $1.1820 currently. The hourly chart shows resistance now between $1.2000/$1.2050.
Whilst the dollar may have shown signs of tentative recovery against the euro, no such thing on Cable, as the market continues to hold up well. Initial signs of a move to the downside were bought into yesterday afternoon and the market closed only 2 pips down on the day as the support around $1.3500 held firm. This is more of a near term consolidation now as the market again trades around the flat line today (currently with under 30 pips of daily range). Things are likely to hot up with the Average True range of around 65 pips currently, but both the daily and hourly chart configurations show a market in consolidation mode over the past four sessions. Initial support is yesterday’s low at $1.3520, with yesterday’s high at $1.3585 protecting the more considerable lower high at $1.3612. There is the mildest positive bias but in effect the market is now looking for its next catalyst.
The yen is once more strengthening again within the 112.00/113.75 range as the market pulls back below the mid-range pivot around 113.00. The pivot support was creaking under the pressure throughout yesterday’s session but has been decisively breached this morning as the yen has gained ground. The move on Dollar/Yen over the past week has very similar traits to those rallies of early and mid-December which ultimately came back towards a test of the range lows again. Momentum indicators very much retain a neutral configuration and point to a near term outlook being the one to play. A close below 113.00 would be a negative impact on the near term outlook and bolster the resistance of yesterday’s high at 113.38. The hourly chart shows resistance now at 112.5/113.00 and that intraday rallies are being sold into. Initial support at 112.50 before 112.00/112.20.