Connect with us

Forex

The BoJ is On Deck, but Beware of Risk Trends From FOMC, ECB

Published

on


Fundamental Forecast for JPY: Neutral

Talking Points:

Yen and US Dollar Aim Higher as Trade War Fears Swell Before G7.

USD/JPY Technical Outlook: Decision Time for the Japanese Yen.

– If you’re looking for long-term analysis on the Yen, check out our Quarterly Forecast for the currency.

Want to see how other traders are approaching USD/JPY? Check out our IG Client Sentiment indicator.

USD/JPY With a Second Consecutive Weekly Doji

It was another mixed week for the Japanese Yen, as the currency put in another indecision formation on the weekly chart of USD/JPY. This marks the second consecutive week of indecisive price action, and this happened even as a return of risk tolerance crept back into global markets, with both the Dow and S&P 500 setting fresh two-month highs while the Nikkei further recovered from the May sell-off.

USD/JPY Weekly Chart: Two Consecutive Weeks of Indecision

usdjpy usd/jpy weekly chart

Chart prepared by James Stanley

The big item this week out of Japan was the final read of Q1 GDP, which had previously indicated an annualized contraction of -.4%. GDP growth for last quarter was revised down to an annualized -.6%, and this is perhaps even more worrisome than initially thought as this contraction ended two consecutive years of GDP growth for Japan. The primary drag appeared to emanate from domestic consumption, and this comes from a continued lag in wage growth. Capital investment continues to grow, albeit at a moderate pace, and hopes are high that economic growth will resume after the Q1 pullback. While a match of last year’s 1.7% GDP growth might be a bit too optimistic, the prospect of strength returning to US and EU markets could help the Japanese economy get back on an upward trajectory.

The crux point for Japan continues to be inflation, which further fell in April after the earlier-year spike.

Japan Monthly CPI Growth Falls Back-Below 1% in April

Japan Monthly CPI Growth Since January, 2017

Chart prepared by James Stanley

The BoJ is On Deck

Next week brings a Bank of Japan meeting on Friday morning, and this takes place after rate decisions in the US and Europe. In the US, the wide thought is that we’ll see another interest rate hike on Wednesday, marking the second such move this year out of the Federal Reserve. The day after brings an ECB rate decision and, of recent, the growing thought is that we’ll hear the bank begin to talk about how they might plan to start tapering their QE purchases. Each of these rate decisions have the potential to be noteworthy, and the Japanese Yen could be swung in either direction on the basis of risk on/off forces that are derived from each of those respective meetings.

BoJ Inflation Forecasts – Will They Cut in July?

Cutting inflation forecasts has become a rather usual occurrence at the Bank of Japan, and a circulating report on Friday morning indicated that this may be in the cards yet again for the BoJ when their next outlook report is due at the end of July. This happened in April when the bank abandoned the target date for returning inflation to 2%, and they also cut the inflation forecast for 2018 to 1.3% from a prior 1.4%. Expectations for 2019 and 2020 remain at 1.8%, but this may be cut at the bank’s July rate decision along with another nudge-lower to 2018 expectations.

Forecast For Next Week

The forecast for the Japanese Yen will remain at neutral for next week. While the backdrop for continued Yen-weakness appears to be starting to line up, the currency remains vulnerable to risk aversion themes, particularly as we approach what could be a pensive European Central Bank rate decision.

To read more:

Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts for Q1 have a section for each major currency, and we also offer a plethora of resources on USD-pairs such as EUR/USD, GBP/USD, USD/JPY, AUD/USD. Traders can also stay up with near-term positioning via our IG Client Sentiment Indicator.

— Written by James Stanley, Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX



Source link

Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Forex

AUD/USD May Fall With Asia Stocks After Wall Street Volatility

Published

on

By


Asia Pacific Market Open Talking Points

  • British Pound and New Zealand Dollars climbed. Former enjoyed Brexit news, latter rallied on CPI
  • S&P 500 recovered after risk-aversion dominated US markets on shutdown news. USD depreciated
  • AUD/USD may fall as market mood sours in Asia, jobs data misses expectations. Eyes chart support

See our study on the history of trade wars to learn how it might influence financial markets!

The British Pound and New Zealand Dollar were some of the best performing majors on Wednesday. Sterling continued rallying amid ebbing ‘No-Deal’ Brexit bets despite UK Prime Minister Theresa May leaving the door open to one. Meanwhile, the Kiwi Dollar enjoyed fading expectations of an RBNZ rate cut this year after a better-than-expected local inflation report.

For pro-risk currencies such as the Australian Dollar, the US trading session offered little fuel to extend their gains. White House Economic Adviser Kevin Hassett spoke and warned the continuation of the government shutdown could result in near-zero growth. After gapping higher, the S&P 500 traded lower as domestic government bonds rallied. After a slight rally later, the index closed +0.22%.

This signaled a flight-to-safety as risk capital flowed into haven assets. The US Dollar, which tends to benefit in this scenario, failed to capitalize on gains and ended the day cautiously lower. Falling yields alongside a fading Fed rate hike bets may have been a more prominent influence. Meanwhile the anti-risk Japanese Yen still ended the day lower, perhaps due to the Bank of Japan lowering inflation expectations.

Earlier in the day, US President Donald Trump warned China that tariffs could increase should a trade deal not be reached. As the markets then transitioned into Thursday’s session, the White House requested data on if the shutdown prolongs into March. This showed that it may continue for the time being. As such, these developments may adversely impact Asia Pacific benchmark stock indexes as markets turn risk-averse.

This could boost the Japanese Yen at the expense of the sentiment-linked Australian and New Zealand Dollars. Australia’s December jobs report will also cross the wires. Data out of the country has been tending to underperform relative to economists’ expectations as of late. Such an outcome could increase expectations of an RBA rate cut as AUD/USD falls. Overnight index swaps are pricing in a 34% chance of a cut later this year.

AUD/USD Technical Analysis

The continuation pattern outlined in my weekly Australian Dollar forecast appears to have been broken on the AUD/USD chart below. Typically, a “Pennant” is a continuation pattern. The descent under it may open the door to losses instead. Near-term support is at 0.70211 with resistance around 0.71645.

Each week I conduct a poll to see which Aussie crosses to cover in the technical forecast. You can participate in the poll by following me on twitter @ddubrovskyFX as well as to see timely updates on the Aussie Dollar.

AUD/USD Daily Chart

Chart of AUD/USD

Chart created in TradingView

US Trading Session

Chart of US Trading Session

Asia Pacific Trading Session

Chart of Asia Pacific Trading Session

** All times listed in GMT. See the full economic calendar here

FX Trading Resources

— Written by Daniel Dubrovsky, Junior Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter



Source link

Continue Reading

Forex

Traders Net-Long Increases from Last Week

Published

on

By


EURUSD

65.7% OF TRADERS ARE NET-LONG

EURUSD: Retail trader data shows 65.7% of traders are net-long with the ratio of traders long to short at 1.91 to 1. In fact, traders have remained net-long since Jan 10 when EURUSD traded near 1.1554; price has moved 1.6% lower since then. The percentage of traders net-long is now its highest since Dec 31 when EURUSD traded near 1.1464. The number of traders net-long is 2.0% higher than yesterday and 27.2% higher from last week, while the number of traders net-short is 8.2% lower than yesterday and 4.3% higher from last week.

To gain more insight to how we use sentiment to power our trading, join us for our weekly Trading Sentiment webinar.

EURUSD SENTIMENT CONTINUES TO SUGGEST A BEARISH BIAS

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EURUSD prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger EURUSD-bearish contrarian trading bias.

Having trouble developing your strategy? Here’s the #1 mistake that traders make.

— Written by Nancy Pakbaz, CFA, DailyFX Research



Source link

Continue Reading

Forex

Oil Risks Larger Recovery as Inverse Head-and-Shoulders Takes Shape

Published

on

By


Oil Talking Points

Oil prices remain bid even as the International Monetary Fund (IMF) reduces its global growth forecast for 2019 and 2020, and the ongoing efforts by the Organization of the Petroleum Exporting Countries (OPEC) to stabilize the energy market may spur a larger recovery in crude as an inverse head-and-shoulders formation takes shape.

Image of daily change for major financial markets

Oil Risks Larger Recovery as Inverse Head-and-Shoulders Takes Shape

Image of daily change for crude oil prices

Fresh comments from OPEC Secretary-General Mohammad Barkindo suggest the group will continue to cut production over the coming months as the official insists that the ‘the market has started to respond positively’ at the World Economic Forum in Davos, Switzerland, and the current environment raises the risk for higher crude prices as Mr. Barkindo goes onto say that ‘we are beginning to see very sharp reductions in supply.’

Image of EIA U.S. field production of crude oil

In fact, OPEC and its allies may curb production throughout 2019 as updates from the U.S. Energy Information Administration (EIA) show field production climbing to 11,900K in the week ending January 11 after holding steady at 11,700K for three consecutive weeks, and the group may continue to combat the stickiness in Non-OPEC supply especially as Russia Minister of Energy, Alexander Novak¸ endorses a price range of $55-65bbl.

With that said, the advance from the December-low ($42.36) may gather pace as oil prices break out of the downward trend carried over from late-2018, with developments in the Relative Strength Index (RSI) fostering a constructive outlook for crude as the oscillator bounces back from oversold territory and carves a bullish formation. Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups.

Oil Daily Chart

Image of crude oil daily chart

  • Crude stages a near-term rebound following the failed attempts to test the June 2017-low ($42.05), and oil prices may continue to track higher as an inverse head-and-shoulders formation takes shape.
  • In turn, a break/close above the $55.10 (61.8% expansion) to $55.60 (61.8% retracement) region raises the risk for a larger reversal, with the next area of interest coming in around $57.40 (61.8% retracement) followed by the Fibonacci overlap around $59.00 (61.8% retracement) to $59.70 (50% retracement).

For more in-depth analysis, check out the 1Q 2019 Forecast for Oil

Additional Trading Resources

Are you looking to improve your trading approach? Review the ‘Traits of a Successful Trader’ series on how to effectively use leverage along with other best practices that any trader can follow.

Want to know what other markets the DailyFX team is watching? Download and review the Top Trading Opportunities for 2019.

— Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.



Source link

Continue Reading

Trending

Copyright © 2017 Zox News Theme. Theme by MVP Themes, powered by WordPress.