Today’s risk off sentiment has been clearly reflected in the the Yen complex with the commodity pairs and USD/JPY falling the most, and only the gbp/jpy and eur/jpy now making an effort to rally as traders now wait for the BOJ, traditionally the last of the Central Banks to report. And what is significant on this occasion is this is the first BOJ Outlook Report and Monetary Policy Statement since Shinzo Abe’s electoral victory earlier this month, so it will be interesting to see if this is reflected in either the statement or the report. In other words will there be any mention of Abe’s ‘third arrow’ of promised structural reform, or will the BOJ simply continue to focus on the other two, namely monetary easing and yet more fiscal stimulus.
From a technical perspective the four hour charts for the Yen pairs suggest price support across the complex, with Yen buying slowing as the currency looks very overbought on our currency strength indicator. Some levels for the individual pairs include 113.02 to the downside for USD/JPY, from which the pair has managed to rally to test the first resistance at 113.23, but overall the move lacks conviction.
For EUR/JPY support came in at 131.44, and validated on the 15 min chart by a bullish engulfing candle. The key upside level for EUR/JPY is 131.92 where we have a significant area of congestion. But a move through here would take the pair to test 132.27.
Moving to GBP/JPY, this is the only Yen pair that managed to post a significant upside move but the high of the session has been capped by the strong resistance in the 150 region and where the pair has corrected at various times in the past. Today’s failure to breach this price region has seen the pair move back to 149.16 from which it has been attempting to rally, and in turn creating a candle with a significant upper wick indicating continued weakness. Moreover, the candle is also supported by high volume also suggesting further weakness to come, and a possible move back to the congestion zone in the 147.80 – 148 price region.
For the Yen commodity pairs, the price action on the daily chart has been remarkable similar with today’s sharp falls now looking to reverse, with the strongest move, so far in AUD/JPY where the candle of the day has found good price support at 86.77 and if the pair manages to clear the stiff resistance in the 87 region would provide a good platform for the pair to move back to test 87.77.
However, given today’s lack lustre performace from the US indices and falling bond yields any Yen selling may be short lived. The only counter balance to this sentiment is the VIX which, at time of writing, is trading in the 10 region, and certainly not suggesting markets are ready yet for any major correction. So all we may be seeing is a little local difficulty as we wait for the BOJ.
By Anna Coulling