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USD/JPY Coils Ahead of BoJ/Fed- Outlook Mired by Bearish Momentum

USD/JPY Coils Ahead of BoJ/Fed- Outlook Mired by Bearish Momentum

Talking Points:

- USD/JPY Retains Bearish RSI Formation Ahead of BoJ, FOMC.

- NZD/USD Preserves Monthly Opening Range Ahead of Trade Balance, 2Q GDP.

- USDOLLAR Continues to Carve Bearish Patterns Ahead of U.S. Retail Sales, CPI.

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USD/JPY Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • USD/JPY may continue to consolidate going into the Bank of Japan (BoJ) & Federal Open Market Committee (FOMC) interest rate decisions as both central banks are anticipated to retain their current policy in September; may see risk trends continue to drive the exchange rate as market participants treat the Yen as a funding-currency.
  • Despite increased pressure on the BoJ to further expand its asset-purchase program, may get more of the same from the central bank as Governor Haruhiko Kuroda remains confident in achieving the 2% target for inflation in the first-half of fiscal year 2016.
  • DailyFX Speculative Sentiment Index (SSI) shows retail crowd remains net-long USD/JPY since June8, with the ratio coming off of recent extremes as it narrows to +1.87 as 65% of traders are long.


NZD/USD Daily Chart
  • Despite the rate cut & the dovish language from the Reserve Bank of New Zealand (RBNZ), NZD/USD may continue to consolidate in the days ahead as it preserves the monthly opening range; need a close back above 0.6400 (61.8% retracement) to favor a more meaningful rebound in the exchange rate.
  • Even though RBNZ Governor Graeme Wheeler appears to be softening the verbal intervention on the local currency, a trade deficit accompanied by a dismal 2Q GDP report may produce near-term headwinds for the New Zealand dollar especially as the central bank keeps the door open to further embark on its easing cycle.
  • Will keep a close eye around 0.6195 (August low) to 0.6210 (161.8% expansion) for near-term support, with a break/close below exposing the next target around 0.6160 (161.8% expansion).

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USDOLLAR(Ticker: USDollar):

IndexLastHighLowDaily Change (%)Daily Range (% of ATR)
DJ-FXCM Dollar Index11988.9812016.4811985.83-0.1153.20%
USDOLLAR Daily Charts

Chart - Created Using FXCM Marketscope 2.0

  • Recent string of lower highs & lows in the Dow Jones-FXCM U.S. Dollar raises the risk for a larger pullback especially as market participants scale back bets for a September liftoff but, the fresh comments coming out of the Fed may keep the greenback afloat should the central bank keep a 2015 rate hike on the table.
  • Even though the Fed rate decision highlights the biggest event risk, may see the U.S. Retail Sales report along with the Consumer Price Index (CPI) prop up the greenback should the developments encourage an improved outlook for growth and inflation.
  • May see the USDOLLAR work its way back towards 11,951 (38.2% expansion) to 11,965 (23.6% retracement) as the greenback searches for support.

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--- Written by David Song, Currency Analyst

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

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