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USD/JPY Bearish Behavior Persists Ahead of Fed Economic Symposium

USD/JPY Bearish Behavior Persists Ahead of Fed Economic Symposium

2017-08-21 14:48:00
David Song, Strategist
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Talking Points:

- USD/JPY Bearish Behavior Persists Ahead of Fed Economic Symposium.

- GBP/USD Risks Larger Rebound Amid Failure to Test July-Low (1.2812).

- Sign Up for the DailyFX Trading Webinarsfor an opportunity to discuss potential trade setups.

DailyFX Table

Ticker

Last

High

Low

Daily Change (pip)

Daily Range (pip)

USD/JPY

108.74

109.42

108.68

50

74

USD/JPY remains under pressure going into the last full-week of August, with the pair at risk of extending the decline from earlier this month as market participants scale back bets for three Fed rate-hikes in 2017.

Downside targets remain on the radar ahead of Kansas City Fed Economic Symposium in Jackson Hole, Wyoming as the Federal Open Market Committee (FOMC) adopts a more cautious tone and warns ‘the recent run of soft inflation readings could prove to be more persistent than the staff expected.’ Even though ‘the Committee expects to begin implementing its balance sheet normalization program relatively soon,’ a growing number of Fed officials may show a greater willingness to retain the current policy throughout the remainder of the year as the central bank struggles to achieve the 2% target for price growth.

In turn, the weakness in U.S. Treasury Yields may persist ahead of the next quarterly meeting in September, and the dollar may continue to exhibit a bearish behavior throughout the remainder of the year should Chair Janet Yellen and Co. project a more shallow path for the Fed Funds rate.

USD/JPY Daily Chart

USD/JPY Daily Chart

Chart - Created Using Trading View

  • Keep in mind USD/JPY pushes to fresh monthly lows going into the final days of August, with the near-term outlook capped by the Fibonacci overlap around 111.10 (61.8% expansion) to 111.60 (38.2% retracement).
  • Downside targets remain on the radar as USD/JPY extends the string of lower-highs, and the 108.30 (61.8% retracement) to 108.40 (100% expansion) region is in focus as it sits just above the 2017-low (108.13), with the next area of interest coming in around 106.60 (38.2% retracement) 107.20 (61.8% retracement).
  • Keeping a close eye on the Relative Strength Index (RSI) as it threatens the bearish formation carried over from the previous month and struggles to push into oversold territory; may see the oscillator start to deviate with price as the momentum indicator fails to push to fresh monthly lows.

Ticker

Last

High

Low

Daily Change (pip)

Daily Range (pip)

GBP/USD

1.2910

1.2911

1.2850

43

61

GBP/USD holds a narrow range following the slew of mixed data prints coming of the U.K., but the pair may stage a large rebound over the coming days as it appears to be turning around ahead of the July-low (1.2812).

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Bear in mind that Bank of England (BoE) Governor Mark Carney has opted out of the Fed Economic Symposium, with Deputy Governor Ben Broadbent slated to attend the event on behalf of the central bank head. As a result, the BoE official may largely endorse a wait-and-see approach for monetary policy, with the broader bias for Sterling tilted to the downside as the U.K.’s departure from the European Union (EU) clouds the economic outlook with high uncertainty.

Nevertheless, the British Pound may trade on a firmer footing over the coming days as the uptick in Average Hourly Earnings accompanied by the rebound in Retail Sales highlights an improved outlook for the real economy. As a result, a growing number of BoE officials may change their tune over the coming months especially as U.K. wage growth picks up for the first time in January and heightens the threat for above-target inflation.

GBP/USD Daily Chart

GBP/USD Daily Chart

Chart - Created Using Trading View

  • Even though GBP/USD fails to preserve the upward trend from May, the pair may consolidate going into the end of the month as it fails to test the July-low (1.2812), while the Relative Strength Index (RSI) appears to be flattening out ahead of oversold territory.
  • Lack of momentum to close below the 1.2860 (61.8% retracement) hurdle may generate a larger rebound in GBP/USD, with the first topside hurdle coming in around 1.2950 (23.6% expansion) followed by the Fibonacci overlap around 1.3090 (38.2% retracement) to 1.3120 (78.6% 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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