USD/JPY Approaches Key Support Zone Ahead of BoJ Minutes

2017-03-21 15:22:00

Talking Points:

- USD/CAD Slips to Fresh Monthly Low as Canada Retail Sales Jump 2.2%; RSI Flashes Bearish Signal.

- USD/JPY Extends Bearish Series Ahead of BoJ Minutes; Approaches 111.60 Support Zone.

Currency	Last	High	Low	Daily Change (pip)	Daily Range (pip)
USD/CAD	1.3287	1.3365	1.3265	63	100

USD/CAD Daily

Chart - Created Using Trading View

USD/CAD pares the rebound from earlier this week, with the pair slipping to a fresh monthly low of 1.3264 as Canada Retail Sales exceeds market forecast and jumps 2.2% in January; a close below the Fibonacci overlap around 1.3290 (50% retracement) to 1.3310 (38.2% retracement) raises the risk for a further decline in the exchange rate especially as former-trendline support on the Relative Strength Index (RSI) appears to be offering resistance.
The pickup in household consumption accompanied by the ongoing expansion in the labor market may put pressure on the Bank of Canada (BoC) lift the benchmark interest rate off of the record-low, but the Consumer Price Index (CPI) may tame interest rate expectations as the headline reading for inflation is expected to hold steady an annualized 2.1% in February; in turn, Governor Stephen Poloz may continue to endorse a wait-and-see approach at the next meeting on April 12 as ‘subdued growth in wages and hours worked continue to reflect persistent economic slack in Canada.’
Moreover, the second-tier data prints coming out of the U.S. may fail to prop up on the dollar as the Federal Open Market Committee (FOM) is widely expected to retain the current policy at the next interest rate decision on May 3, but Fed Fund Futures may continue to highlight expectations for a move in June as Chair Janet Yellen and Co. continue to project three to four rate-hikes for 2017.
Indeed, the broader outlook for USD/CAD remains constructive as the pair continues to operate within the upward trending channel carried over from 2016, but a close below the Fibonacci overlap around 1.3290 (50% retracement) to 1.3310 (38.2% retracement) may open up the next downside target around 1.3210 (61.8% retracement) followed by the 1.3100 (78.6% retracement) handle.

Currency	Last	High	Low	Daily Change (pip)	Daily Range (pip)
USD/JPY	112.16	112.87	112.13	39	74

USD/JPY Daily

Chart - Created Using Trading View

USD/JPY appears to be working its way towards the February low (111.69) as it extends the series of lower highs & lows from the previous week, but another failed attempt to break the Fibonacci overlap around 111.30 (50% retracement) to 111.60 (38.2% retracement) may produce range-bound conditions ahead of Japan’s 2016 fiscal year-end; will keep a close eye on the RSI as it comes up against the bullish trend carried over from the previous year.
The Bank of Japan (BoJ) Minutes may generate a limited market reaction as the central bank sticks to its Quantitative/Qualitative Easing (QQE) Program with Yield-Curve Control, but Governor Haruhiko Kuroda and Co. may keep the door open to further support the real economy as they struggle to achieve the 2% target for inflation.
Nevertheless, the recent appreciation in the Japanese Yen appears to be accompanied by a consolidation in risk appetite as the Nikkei (JPN225) highlights a similar dynamic and continues to pullback from a fresh 2017-high (19,704), and market sentiment may continue to influence the dollar-yen exchange rate over the near-term as market participants mull the deviating paths for monetary policy.
A close below the Fibonacci overlap around 112.40 (61.8% retracement) to 112.50 (38.2% retracement) raises the risk for another test of the near-term support zone around 111.30 (50% retracement) to 111.60 (38.2% retracement).

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The DailyFX Speculative Sentiment Index (SSI) shows the retail crowd has been net-short USD/CAD since February 28, while traders remains net-long USD/JPY since January 9.
Retail trader data shows 38.8% of traders are net-long with the ratio of traders short to long at 1.58 to 1. The number of traders net-long is 1.7% lower than yesterday and 31.4% lower from last week, while the number of traders net-short is 5.0% higher than yesterday and 20.5% lower from last week.
Retail trader data shows 72.2% of traders are net-long with the ratio of traders long to short at 2.6 to 1.he number of traders net-long is 5.1% lower than yesterday and 5.9% lower from last week, while the number of traders net-short is 0.2% higher than yesterday and 27.3% lower from last week.
Seems as though retail interest has narrowed sharply from the previous week, and this dynamic may continue to take shape over the coming days on the back of month/quarter-end flows.

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