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USD/JPY Outlook Clouded With Bearish Pattern Ahead of Fed Testimony

USD/JPY Outlook Clouded With Bearish Pattern Ahead of Fed Testimony

2016-02-05 18:00:00
David Song, Currency Strategist
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Talking Points:

- USD/JPY Continues to Carve Bearish Pattern- Retail Position Even More Stretched.

- Gold Pulls Back from 2015 Trendline- RSI Sits in Overbought Territory.

- USDOLLAR Rebounds on Upbeat Labor Market Dynamics- Yellen Testimony in Focus.

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USD/JPY

USD/JPY Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • USD/JPY may face a larger rebound in the days ahead as it holds above the 2016 low (115.96) for now, but the failure to retain the near-term bullish formation in the Relative Strength Index (RSI) may foreshadow a further decline in the exchange rate especially as the pair carves a series of lower highs & lows in February.
  • Even though an advisor to Prime Minister Shinzo Abe argues that the Bank of Japan (BoJ) may combine qualitative easing (QE) with larger negative interest rates, a further improvement in the Balance of Payments (BoP) may encourage an improved outlook for the real economy and keep Governor Haruhiko Kuroda and Co. on the sidelines following the surprise rate-cut last month.
  • The DailyFX Speculative Sentiment Index (SSI) shows retail crowd remains net-long USD/JPY since January 29, but the ratio continues to push to fresh near-term extremes as it advances to +2.84, with 74% of traders now long.

XAU/USD

XAU/USD Daily Chart
  • Gold stands at a key juncture as it tests the descending trendline from back in May; will stay constructive on the precious metal as long as the RSI holds in overbought territory and is able to retain the bullish formation carried over from the end of 2015.
  • Despite the meaningful rebound in February, the precious metal stands at risk of facing longer-term headwinds amid the disinflationary environment across the major industrialized economies accompanied by rising interest-rate expectations in the U.S.
  • Will keep a close eye on $1,163 (23.6% retracement) for near-term resistance, but a larger decline may spur a move back towards $1,130 (61.8% expansion) to $1,132 (38.2% retracement).

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USDOLLAR(Ticker: USDollar):

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

12134.97

12135.31

12053.2

0.57

156.09%

USD/JPY Outlook Clouded With Bearish Pattern Ahead of Fed TestimonyUSDOLLAR Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Despite the 151K expansion in U.S. Non-Farm Payrolls (NFP), the rebound in the USDOLLAR may carry into the week ahead amid signs if sticky wage growth paired with the pickup in Labor Force Participation; may keep the Fed on course to implement higher borrowing-costs in 2016.
  • With Fed Chair Janet Yellen scheduled to deliver the semi-annual Humphrey-Hawkins testimony next week, an upbeat tone from the central bank head may heighten the appeal of the dollar as the U.S. economy approaches ‘full-employment.’
  • Failure to close below 12,049 (78.6% retracement) to 12,082 (61.8% expansion) may generate a move back towards the former-resistance zone around 12,176 (78.6% expansion) to the 12,200 pivot.
USD/JPY Outlook Clouded With Bearish Pattern Ahead of Fed Testimony

Read More:

USD/JPY – Claw Back

USD/JPY-Don’t Forget about the 26 Year Trendline

COT-Big Increase in Net Long Position for Crude Oil Trend Followers

USD/CAD Technical Analysis: CAD Bulls Likely In Charge below 1.4325 (Levels)

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--- Written by David Song, Currency Analyst

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

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