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Larger USDJPY Correction Puts Bullish Trend at Risk- 100.50 Critical

Larger USDJPY Correction Puts Bullish Trend at Risk- 100.50 Critical

David Song, Strategist

Talking Points:

- USDOLLAR Rebound Stalls at Former Support; Yellen Warns of Seasonal Factors

- Japanese Yen Correction Gathers Pace as BoJ Sees End of Easing Cycle

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

10584.03

10615.7

10578.68

-0.07

102.47%

USDOLLAR Daily

Forex_Larger_USDJPY_Correction_Puts_Bullish_Trend_at_Risk-_100.50_Critical_body_Picture_3.png, Larger USDJPY Correction Puts Bullish Trend at Risk- 100.50 Critical

Chart - Created Using FXCM Marketscope 2.0

  • If RSI Preserves Downward Trend, Will Stay Bearish Below Former Support (10,615)
  • Interim Resistance: 10,657 (61.8 expansion)- Former Support
  • Interim Support: 10,509 (23.6 retracement) to 10,524 (38.2 retracement)

Release

GMT

Expected

Actual

Durable Goods Orders (JAN)

13:30

-1.7%

-1.0%

Durables Ex Transportation (JAN)

13:30

-0.3%

1.1%

Cap Goods Orders Nondef Ex Air (JAN)

13:30

-0.2%

1.7%

Cap Goods Ship Nondef Ex Air (FEB 22)

13:30

-1.0%

-0.8%

Initial Jobless Claims (FEB 15)

13:30

335K

348K

Continuing Claims (FEB 23)

13:30

2995K

2964K

Fed's Yellen Testifies to Senate on Monetary Policy

15:00

Fed's Fisher Speaks on Financial Stability Panel

15:30

Kansas City Fed Manufacturing Activity Survey

16:00

2

4

Fed's Lockhart, George to Speak on Banking

20:15

The Dow Jones-FXCM U.S. Dollar Index (Ticker: USDollar) struggled to push back above former support (10,615) despite the better-than-expected Durable Goods Orders report, and the greenback may continue to carve a lower high going into March as the Fed pledges to retain a highly accommodative policy stance even after the 6.5 percent unemployment threshold is achieved.

It seems as though the Federal Open Market Committee (FOMC) will preserve the zero interest rate policy (ZIRP) for an extended period of time amid the recent ‘softness’ in economic activity, and Chair Janet Yellen may sound increasingly dovish over the coming months should the seasonal factors produce a significant downward shift in the economic outlook.

We favor ‘selling bounces’ ahead of the Fed’s March 19 meeting as long as the bearish RSI momentum retains intact, and the USDOLLAR may continue to carve a series of lower highs paired with lower lows should interest rate expectations deteriorate further.

Join DailyFX on Demandto Cover Current U.S. Dollar Trade Setups

Forex_Larger_USDJPY_Correction_Puts_Bullish_Trend_at_Risk-_100.50_Critical_body_ScreenShot157.png, Larger USDJPY Correction Puts Bullish Trend at Risk- 100.50 Critical

USDJPY Daily

Forex_Larger_USDJPY_Correction_Puts_Bullish_Trend_at_Risk-_100.50_Critical_body_Picture_1.png, Larger USDJPY Correction Puts Bullish Trend at Risk- 100.50 Critical
  • Lower-High Appears in Place as RSI Fails to Preserve Bullish Momentum
  • Interim Resistance: 103.30 (23.6 retracement) to 103.50 (100.0 expansion)
  • Interim Support: 100.50 (61.8 expansion) to 100.70 (61.8 expansion)

Three of the four components gained ground against the greenback, led by a 0.22 percent rally in the Japanese Yen, and the policy outlook may continue to heighten the appeal of the low-yielding currency as the Bank of Japan (BoJ) refrains from expanding its asset-purchase program.

Indeed, BoJ board member Takehiro Sato warned that the central bank may halt its easing cycle even before the 2 percent inflation target is achieved amid the lagging effects of monetary policy, and the USDJPY remains at risk for a larger correction as it continues to carve a lower high around the 102.50 region.

With that said, the downside break in the RSI paired with a close below the 102.00 handle should provide confirmation as well as conviction for additional dollar-yen weakness, and the pair may ultimately threaten the bullish trend from back in 2013 should we see a growing number of BoJ officials scale back their dovish tone for monetary policy.

--- Written by David Song, Currency Analyst

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

To be added to David's e-mail distribution list, please follow this link.

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