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USD/JPY Breakout Attempt Stalls, Fed Rhetoric in Focus

USD/JPY Breakout Attempt Stalls, Fed Rhetoric in Focus

2017-06-26 16:08:00
David Song, Strategist

Talking Points:

- NZD/USD Resilience to Face Narrowing New Zealand Trade Surplus.

-USD/JPY Breakout Attempt Stalls Amid Lackluster U.S. Data; Fed Rhetoric in Focus.

DailyFX Table

Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

NZD/USD

0.7299

0.7311

0.7262

19

49

The near-term resilience in NZD/USD may carry into the end of June as the pair preserves the advance following the Reserve Bank of New Zealand (RBNZ) interest rate decision and carves a fresh series of higher highs & lows.

However, New Zealand’s Trade Balance report may undermine the strength in kiwi as the surplus is expected to narrow in May. A dismal development may drag on the exchange rate as the RBNZ warns ‘GDP growth in the March quarter was lower than expected,’ and Governor Graeme Wheeler and Co. may keep the door open to further support the real economy as the central bank warns ‘numerous uncertainties remain and policy may need to adjust accordingly.

In turn, a failed attempt to test the monthly high (0.7319) may reinforce a long-term bearish outlook for NZD/USD, with the pair starting to show signs of exhaustion as the Relative Strength Index (RSI) struggles to push back into overbought territory.

NZD/USD Daily

NZD/USD Daily Chart

Chart - Created Using Trading View

  • The monthly high (0.7319) and the Fibonacci overlap around 0.7330 (38.2% retracement) to 0.7350 (23.6% expansion) stand on the radar as NZD/USD carves a bullish sequence, but the RSI may flash a meaningful signal over the coming days should the momentum indicator threaten the upward trends from earlier this year.
  • With that said, a bearish RSI trigger may open up the first downside target around the 0.7200 (38.2% retracement) handle, with the next area of interest comes in around 0.7160 (61.8% retracement) followed by the 0.7100 (38.2% expansion) handle, which largely lines up with the 200-Day SMA (0.7099).

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Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

USD/JPY

111.51

111.73

111.13

36

60

A key development may take shape over the coming days as USD/JPY makes another attempt to break out of the downward trend carried over from 2016. The broader outlook for the dollar-yen exchange rate may continue to perked up as risk sentiment improves, but lackluster data prints coming out of the U.S. economy may generate choppy price action especially as market participation is likely to thin going into the end of the month/quarter.

The 1.1% decline in U.S. Durable Goods Orders suggests the recent trend of weaker-than-expected data prints may persist, and the dollar remains at risk of facing near-term headwinds as the Federal Open Market Committee (FOMC) is widely anticipated to keep the benchmark interest rate on hold at the next quarterly meeting on September 20. As a result, fresh remarks from Philadelphia Fed President Patrick Harker, Chair Janet Yellen and Minneapolis Fed President Neel Kashkari may do little to prop up the greenback unless the group of 2017 voting-members show a greater willingness to further normalize monetary policy sooner rather than later. At the same time, the dollar may catch a bid should Chair Yellen largely express the view of the majority and prepare U.S. households and businesses for an imminent rate-hike.

USD/JPY Daily

USD/JPY Daily Chart

Chart - Created Using Trading View

  • Lack of momentum to close above the 111.60 (38.2% retracement) hurdle may foster range-bound prices in USD/JPY, with the first downside region of interest coming in around the 200-Day SMA (110.79) followed by the Fibonacci overlap around 109.40 (50% retracement) to 109.90 (78.6% expansion).
  • Nevertheless, the failed attempt to test the April-low (108.13) should keep USD/JPY afloat over the near-term, with the pair at risk of grinding towards the May-high (114.37) as it clears the monthly opening range.
  • The Relative Strength Index (RSI) also instills a constructive outlook as the momentum indicator breaks out of bearish formation carried over from the previous month, with a break/close above the 100-Day SMA (111.79) opening up the next topside hurdle around 112.40 (61.8% retracement) to 112.80 (38.2% expansion) followed by 113.80 (23.6% expansion) to 114.30 (23.6% retracement), which largely lines up with the May-high (114.37).

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  • Retail trader data shows 14.5% of traders are net-long with the ratio of traders short to long at 5.91 to 1. In fact, traders have remained net-short since May 24 when NZDUSD traded near 0.69227; price has moved 5.4% higher since then. The number of traders net-long is 7.9% lower than yesterday and 19.4% lower from last week, while the number of traders net-short is 3.9% lower than yesterday and 25.4% higher from last week.
  • Retail trader data shows 62.2% of traders are net-long with the ratio of traders long to short at 1.65 to 1. In fact, traders have remained net-long since May 17 when USDJPY traded near 113.757; price has moved 2.0% lower since then. The number of traders net-long is 2.5% lower than yesterday and 15.0% lower from last week, while the number of traders net-short is 5.4% higher than yesterday and 19.5% higher 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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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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