Talking Points:
- AUD/USD Resilience to Persist; Eyes 2017-High Ahead of RBA Minutes.
- USD/JPY Preserves Bullish Series; BoJ Reinforces Dovish Outlook.
| Currency | Last | High | Low | Daily Change (pip) | Daily Range (pip) |
|---|---|---|---|---|---|
| AUD/USD | 0.7623 | 0.7628 | 0.7576 | 44 | 52 |
AUD/USD pares the decline following the Federal Open Market Committee (FOMC) rate-hike amid weak data prints coming out of the world’s largest economy, and the resilience in the aussie-dollar exchange rate may persist over the days ahead should the Reserve Bank of Australia (RBA) Minutes sway the outlook for monetary policy.
It seems as though market participants are unconvinced the FOMC will move again in 2017 as Fed fund futures now highlight a less than 50% probability for a December rate-hike, and the market reaction from earlier this week may continue to unravel as Chair Janet Yellen and Co. appear to be in no rush to unload the balance sheet. In contrast, the RBA may continue to change its tune as Governor Philip Lowe and Co. note that ‘the transition to lower levels of mining investment following the mining investment boom is almost complete.’ Like some of its major counterpart – such as the Bank of Canada (BoC) and even the European Central Bank (ECB) – the RBA may look to reassess its stance as ‘economic growth is still expected to increase gradually over the next couple of years to a little above 3 percent.’ In turn, the Australian dollar may work its way towards the 2017-high (0.7749) if the central bank shows a greater willingness to gradually move away from its easing cycle
AUD/USD Daily
Chart - Created Using Trading View
- Topside targets remain in focus for AUD/USD following the break of channel resistance, with the Relative Strength Index (RSI) exhibiting a similar behavior; another closing price above the 0.7600 (23.6% retracement) handle may encourage a more meaningful run at the next topside hurdle coming in around 0.7650 (38.2% retracement) to 0.7680 (23.6% retracement) followed by the key resistance zone around 0.7730 (61.8% retracement) to 0.7770 (61.8% expansion), which lines up with the 2017-high.
- Will keep a close eye on the RSI as it approaches overbought territory, with a break above 70 raising the risk for fresh monthly highs as the bullish momentum gathers pace.
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| Currency | Last | High | Low | Daily Change (pip) | Daily Range (pip) |
|---|---|---|---|---|---|
| USD/JPY | 110.76 | 111.42 | 110.65 | 17 | 77 |
USD/JPY gives back the advance from earlier this week even as the Bank of Japan (BoJ) reinforces a dovish outlook for monetary policy, and the pair may continue to consolidate over the coming days as market participants mull the fresh developments coming out of the major central banks.
Despite the 7 to 2 split to preserve the current policy, the majority seems to have no intentions of moving away from the highly accommodative stance as the central bank struggles to achieve the 2% target for inflation. With that said, the BoJ appears to be on course to retain the Quantitative/Qualitative Easing (QQE) Program with Yield-Curve Control throughout 2017, and the deviating paths may continue to instill a long-term bullish outlook for USD/JPY as Governor Haruhiko Kuroda emphasizes the central bank ‘will debate an exit strategy only after 2 percent inflation is achieved and price growth stays there stably.’
USD/JPY Daily
Chart - Created Using Trading View
- The USD/JPY outlook has perked up following the failed attempt to test the April-low (108.13), and the pair may continue to threaten the downward trend from 2016 as it clears the narrow range from earlier this week; may see a test of the monthly high (111.71) as dollar-yen starts to carve a bullish sequence, while the Relative Strength Index (RSI) breaks out of the bearish formation carried over from the previous month.
- In turn, a break/close above the Fibonacci overlap around 111.10 (61.8% expansion) to 111.60 (38.2% retracement) may open up the next topside region of interest around 112.40 (61.8% retracement) to 112.80 (38.2% expansion).
- However, the recent developments in the Simple Moving Averages (SMA) highlight the risk for a near-term consolidation as the indicators flatten out, and failure to clear the monthly opening range may generate range-bound conditions over the coming days as the economic docket remains fairly light for the latter half of the month.
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- Retail trader data shows 32.7% of traders are net-long AUD/USD with the ratio of traders short to long at 2.06 to 1. In fact, traders have remained net-short since June 04 when AUD/USD traded near 0.74861; price has moved 1.8% higher since then. The number of traders net-long is 1.5% higher than yesterday and 6.9% lower from last week, while the number of traders net-short is 6.3% higher than yesterday and 12.7% higher from last week.
- Retail trader data shows 64.1% of traders are net-long USD/JPY with the ratio of traders long to short at 1.79 to 1. In fact, traders have remained net-long since May 17 when USD/JPY traded near 113.298; price has moved 2.3% lower since then. The number of traders net-long is 12.9% lower than yesterday and 3.9% lower from last week, while the number of traders net-short is 19.3% higher than yesterday and 5.4% lower from last week.
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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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