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Talking Points:

- USD/JPY Risks Similar Reaction to July BoJ Meeting as Market Expectations Remain Mixed.

- USDOLLAR to React to Fed’s 2017 Interest Rate Dot-Plot Amid Bets for December Rate-Hike.

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USD/JPY

USD/JPY Daily Chart

Chart - Created by David Song

  • USD/JPY may face a similar reaction to the Bank of Japan’s (BoJ) July 29 interest-rate decision as market expectations remain highly mixed, with some looking for a meaningful easing package as central bank officials deliver their ‘comprehensive assessment’ of the economy operating under the negative-interest rate policy (NIRP).
  • Even though the BoJ keeps the door open to further embark on its easing cycle, Governor Haruhiko Kuroda and Co. may stick to the sidelines after expanding its exchange-traded fund (ETF) purchases at the last policy meeting, and more of the same from the central bank may boost the appeal of the Yen especially as Japan returns to its historical role as a net-lender to the world economy.
  • After failing to test the monthly opening range, USD/JPY stands at risk of giving back the advance from the previous month, with a break/close below 101.20 (50% expansion) exposing the August low (99.53), followed by key support around 98.30 (38.2% & 78.6% retracements).
DailyFX SSI
  • The DailyFX Speculative Sentiment Index (SSI) shows the FX crowd remains net-long USD/JPY since July 21, with the ratio hitting a 2016-extreme during in August as it climbed to +5.28.
  • The ratio currently sits at +2.89 as 74% of traders are long, with long positions 18.3% higher from the previous week, while open interest stands a marginal 3.5% above the monthly average.
  • With the retail crowd stuck on the wrong side of the market, may see the SSI work its way back towards recent extremes should the pair extend the decline from earlier this month.

Why and how do we use the SSI in trading? View our video and download the free indicator here

USDOLLAR(Ticker: USDollar):

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

US Dollar Index

11989.42

11996.41

11961.47

0.01

59.08%

USD/JPY Risks Similar Reaction to July Bank of Japan (BoJ) MeetingUSDOLLAR Daily Chart

Chart - Created by David Song

  • With market attention turning to Federal Open Market Committee (FOMC) interest-rate decision, the USDOLLAR may consolidate ahead of the fresh projections coming out of the central bank especially as Fed Funds Futures highlight a 15% probability for a rate-hike, while market participants are assigning a 60% chance for a move in December.
  • A growing number of Fed officials may join Kansas City Fed President Esther George in calling for a 25bp rate-hike as the economy approaches ‘full-employment,’ but changes to the 2017 & 2018 interest rate dot-plot may heavily influence the greenback over the near to medium-term as the central bank appears to be following a similar path to the previous year.
  • Will keep a close eye on the previous month’s range as the USDOLLAR remains stuck within a broader triangle/wedge formation, with the key topside hurdle coming in around 12,049 (78.6% retracement) to 12,064 (61.8% retracement), while support coming in around 11,822 (23.6% retracement) to 11,843 (38.2% retracement).
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Read More:

S&P 500 Tech Update: Looking to Short-term Chart for Direction

Silver Prices: Triangle Morphs into Larger Version of Itself, Wait for the Break

Few US Data Pre-FOMC Keeps Markets on Edge

Weekly Trading Forecast: Fed and BoJ Rate Decisions, Brexit Fears Carry More than Currency Risks

--- Written by David Song, Currency Analyst

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

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