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USD/JPY Breakout in Focus Ahead of Fed, BoJ Rate Decisions

USD/JPY Breakout in Focus Ahead of Fed, BoJ Rate Decisions

Talking Points:

- USD/JPY Breaks Out of Near-Term Range Ahead of BoJ Meeting.

- NZD/USD Outlook Hinges on RBNZ- Is the Easing Cycle Over?

- USDOLLAR Risks Larger Pullback Ahead of FOMC Rate Decision.

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USD/JPY Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • USD/JPY may continue to retrace the decline from earlier this month as it breaks out of the range-bound price action carried over from the previous week, while the Relative Strength Index (RSI) breaks out of the bearish formation carried over from back in November.
  • A closing price above 118.20 (23.6% retracement) to 118.30 (78.6% expansion) may open up the next topside target around 119.00 (161.8% expansion) to 119.10 (38.2% expansion) ahead of the Bank of Japan (BoJ) interest rate decision on January 29 but, more of the same from Governor Haruhiko Kuroda and Co. may limit the topside risk for USD/JPY as market participants scale back bets for a further expansion of the asset-purchase program.
  • The DailyFX Speculative Sentiment Index (SSI) shows retail crowd remains net-long USD/JPY since December 2, but the ratio continues to come off recent extremes as it narrows to +1.73, with 63% of traders now long.


NZD/USD Daily Chart
  • NZD/USD may face range-bound prices ahead of the Reserve Bank of New Zealand (RBNZ) policy meeting on January 28 amid the failed attempt to push/close above 0.6550 (50% retracement) to 0.6570 (100% expansion); long-term outlook remains tilted to the downside as the pair fails to retain the bullish trend from back in September.
  • Even though the RBNZ keeps the door open to further reduce the official cash rate, the New Zealand dollar may face a similar market reaction to the December 10 meeting should Governor Graeme Wheeler suggest the central bank is approach the end of its easing cycle.
  • With the RSI failing to retain the bullish formation from back in September, need a break/close back below former resistance around 0.6370 (50% retracement) to 0.6400 (61.8% retracement) to favor a resumption of the long-term bearish trend.

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USDOLLAR(Ticker: USDollar):

IndexLastHighLowDaily Change (%)Daily Range (% of ATR)
DJ-FXCM Dollar Index12264.3212268.4512237.990.1184.11%
USDOLLAR Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Despite the mixed data prints, the USDOLLAR may stay bid ahead of the Federal Open Market Committee (FOMC) interest rate decision on January 27 as it hold above the former resistance zones around 12,176 (78.6% expansion) to 12,219 (November high), while the RSI retains the bullish formation carried over from 2015.
  • Even though the U.S. economy approaches ‘full employment,’ with the FOMC pledging to implement higher borrowing-costs over the coming months, the 2016 rotation may spark a material shift in the policy outlook as central bank officials continue to combat the disinflationary environment.
  • With mixed expectations surrounding the Fed rate-decision, the USDOLLAR stands at risk of facing choppy prices in the days ahead as it remains largely capped around 12,273 (161.8% expansion) to 12,296 (100% expansion).

Read More:

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Like Clockwork, Draghi’s Threat of Action Next Meeting Sinks EUR/USD

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S&P 500 - Everybody Too Bearish Too Soon?

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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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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.