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USD/JPY Outlook Mired by Failed Test of February High (114.96)

USD/JPY Outlook Mired by Failed Test of February High (114.96)

2017-03-06 16:30:00
David Song, Strategist
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Talking Points:

- USD/JPY Outlook Mired by Failed Test of February High (114.96).

- NZD/USD Oversold RSI Signal to Favor Further Losses; 0.6950 Hurdle in Focus.

DailyFX Table

Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

USD/JPY

113.92

114.14

113.56

15

58

USD/JPY Daily

USD/JPY Daily Chart

Chart - Created Using Trading View

  • Failure to test the February high (114.96) undermines the recent advance in USD/JPY, with the pair at risk of facing further losses over the days ahead as risk sentiment abates; the Nikkei 225 highlights a similar dynamic as the benchmark equity index fails to test the 2017-high (19,698), and the dollar-yen exchange rate may share a similar fate as it struggles to extend the higher highs & lows from the previous week.
  • Broader outlook for USD/JPY remains constructive as Chair Janet Yellen joins her colleagues and argues a March hike would be ‘appropriate,’ with Fed Fund Futures pricing a greater than 80% probability for a move at the March 15 interest rate decision; however, the fresh updates coming out of the Federal Reserve may dampen the appeal of the greenback should central bank officials show a further reduction in the long-run Fed Fund forecast.
  • Nevertheless, the Bank of Japan (BoJ) is likely to endorse a dovish outlook at its March 16 rate decision as the central bank remains far from achieving its 2% target for inflation, but more of the same from Governor Haruhiko Kuroda and Co. may have a limited impact on the local currency as the central bank continues to pursue its Quantitative and Qualitative Easing (QQE) program with Yield-Curve Control.
  • With USD/JPY still capped by the Fibonacci overlap around 114.00 (23.6% retracement) to 114.30 (23.6% retracement), downside targets will be in focus over the coming days, with the first region of interest coming in around 113.10 (78.6% retracement) followed by 112.40 (61.8% retracement) to 112.50 (38.2% retracement).

Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

NZD/USD

0.70001

0.7046

0.6999

30

47

NZD/USD Daily

NZD/USD Daily Chart

Chart - Created Using Trading View

  • NZD/USD gapped lower to start the first full-week of March, with the pair at risk for further losses as it extends the series of lower highs from earlier this month; downside targets remain favored as price and the Relative Strength Index (RSI) preserve the bearish trends carried over from 2016.
  • Will keep a close eye on the RSI as it approaches oversold territory; even though the oscillator dipped below 30 in January 2016, the more meaningful signals were observed throughout 2015, with the development largely accompanied by a further decline in the exchange rate.
  • The Reserve Bank of New Zealand (RBNZ) is largely expected to retain the status quo at the March 23 policy meeting as the central bank argues ‘the outlook remains positive, supported by ongoing accommodative monetary policy, strong population growth, increased household spending and rising construction activity,’ but the Global Dairy Trade auction may push Governor Graeme Wheeler and Co. to further support the real economy should the results show another decline in dairy prices.
  • With that said, NZD/USD may stage a more meaningful test of the Fibonacci overlap around 0.6950 (38.2% retracement) to 0.6980 (23.6% retracement) as the bearish momentum appears to be gathering pace, with the next downside region of interest coming in around 0.6820 (23.6% retracement) to 0.6870 (50% retracement).

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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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