Talking Points:

- USD/JPY Comes Up Against Monthly Opening Range, Channel Support.

- Kiwi Lags Behind; NZD/USD Approaches March Low (0.6890) Ahead of U.S. CPI.

DailyFX Table

Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

USD/JPY

110.24

110.94

110.15

70

79

USD/JPY Daily

USD/JPY Daily Chart

Chart - Created Using Trading View

  • The Japanese Yen continues to gain ground against the greenback, with the recent decline in USD/JPY largely accompanied by a pullback in the global benchmark equity indices; waning risk sentiment may continue to prop up the Yen, but the exchange rate sits at a key juncture as it comes up against channel support, while the Relative Strength Index (RSI) flirts with oversold territory.
  • Even though the broader outlook for USD/JPY remains tilted to the downside, failure to break the monthly opening range may foster a near-term rebound in the exchange rate especially as the Fibonacci overlap around 109.40 (50% retracement) to 109.90 (78.6% expansion) offers support, while Fed Fund Futures now highlight a greater than 60% probability for a June rate-hike.
  • At the same time, the Bank of Japan (BoJ) appears to be changing its tune as Governor Haruhiko Kuroda argues the central bank has the appropriate tools to remove the monetary stimulus in a ‘stable’ manner, but the bar appears to be high for the central bank to move away from its easing-cycle as it struggles to achieve the 2% target for inflation; may see risk trends continue to influence the Japanese Yen as long as the BoJ retains its pledge to keep the 10-year yield close to zero.
  • Another failed attempt to break/close below the Fibonacci overlap around 109.40 (50% retracement) to 109.90 (78.6% expansion) may pave the way for a near-term rebound in the exchange rate especially as the RSI holds above 30, with the first topside hurdle coming in around 111.10 (61.8% expansion) to 111.60 (38.2% retracement) followed by 112.40 (61.8% retracement) to 112.80 (38.2% expansion).

Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

NZD/USD

0.6938

0.6969

0.6930

24

39

NZD/USD Daily

NZD/USD Daily Chart

Chart - Created Using Trading View

  • The New Zealand dollar lags behind its major counterparts, with NZD/USD at risk of testing the March low (0.6890) as it struggles to preserve the rebound from earlier this week; broader outlook for the kiwi-dollar exchange rate remains tilted to the downside as price & the RSI preserve the bearish formations carried over from the previous year.
  • The deviating paths for monetary policy continues to instill a bearish outlook for NZD/USD especially as the Federal Reserve appears to be on course to implement additional rate-hikes over the coming months, and central bank officials may adopt a more hawkish tone at the next meeting in May as the core U.S. Consumer Price Index (CPI) is projected to increase an annualized 2.3% in March following a 2.2% expansion the month prior; recent comments from Chair Janet Yellen suggests the Fed will continue to unwind its highly accommodative stance as the committee is close in achieving its dual mandate for price stability and full-employment.
  • In contrast, it seems as though the Reserve Bank of New Zealand’s (RBNZ) independence will be put to the test as Finance Minister Steven Joyce plans to review the decision-making process, while the Labour Party intends to rollout a dual mandate for the central bank; the push to revamp the RBNZ’s decree may keep the central bank of the sidelines for the foreseeable future as Governor Graeme Wheeler is scheduled to leave the helm in September.
  • With NZD/USD capped by the Fibonacci overlap around 0.7040 (50% retracement) to 0.7060 (38.2% retracement), the downside remains favored over the days ahead, with a break of the March low (0.6890) raising the risk for another test of the interim support-zone around 0.6820 (23.6% retracement) to 0.6870 (50% retracement).

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--- Written by David Song, Currency Analyst

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