USD/JPY Bullish Pattern Persists as Japan Officials Favor BoJ-Easing

2016-09-09 16:32:00 David Song

Talking Points:

- USD/JPY Continues to Carve Bullish Pattern as Japanese Officials Favor BoJ-Easing.

- USDOLLAR Extends Advance as Fed Officials Boost Rate-Expectations; Governor Brainard in Focus.

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Chart - Created by David Song

USD/JPY may work its way back towards the monthly opening range as it carves a near-term series of higher highs & lows, while Etsuro Honda, an advisor to Prime Minister Shinzo Abe, argues the Bank of Japan (BoJ) should further ease monetary policy at the September 21 interest-rate decision.
Despite lingering expectations for an expansion of the quantitative/qualitative easing (QQE) program, Governor Haruhiko Kuroda may highlight a growing dissent within the central bank and try to buy more time while delivering the ‘comprehensive review’ as BoJ officials continue to monitor the impact of the negative-interest rate policy (NIRP) on the real economy.
Will continue to watch the topside targets for USD/JPY as the bullish trend carried over from the previous month remains in play, with the next hurdle coming in around 103.20 (38.2% retracement) followed by the former-support zone around 104.20 (61.8% retracement) to 104.50 (23.6% expansion), which coincides with the monthly high (104.31).

The DailyFX Speculative Sentiment Index (SSI) shows the FX crowd remains net-long USD/JPY since July 22, with the ratio hitting a 2016-extreme during the previous month as it climbed to +5.28.
The ratio continues to narrow during the first full-week of September as it currently sits at +2.21, with short positions 27.4% lower from the previous week, while open interest stands 6.5% below the monthly average.

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USDOLLAR(Ticker: USDollar):

Index	Last	High	Low	Daily Change (%)	Daily Range (% of ATR)
US Dollar Index	11957.83	11964.84	11890.43	0.38	136.37%

Chart - Created by David Song

The ongoing series of lower highs & lows may foster a larger advance in the USDOLLAR as attention turns to Fed Governor Lael Brainard, with the permanent voting-member scheduled to speak next week (September 12); the fresh comments may influence market expectations ahead the interest-rate decision on September 21 as Fed Funds Futures now highlight a 30% probability for a rate-hike this month.
With a growing number of Fed officials arguing for higher borrowing-costs in 2016, we may see a larger dissent within the committee especially as the U.S. economy approaches ‘full-employment,’ but Chair Janet Yellen may follow a similar path to 2015 as the central bank struggles to achieve its 2% target for inflation.
Failure to test the August low (11,841) as well as the Fibonacci overlap around 11,822 (23.6% retracement) to 11,843 (38.2% retracement) may encourage a larger recovery in the USDOLLAR, with a closing price above 11,951 (38.2% retracement) to 11,965 (23.6% retracement) opening up the next topside hurdle at 11,989 (50% retracement) followed by the former support zone around 12,049 (78.6% retracement) to 12,064 (61.8% retracement).