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USD/JPY Sits at Support, Outlook Hinges on Fed Chair Yellen Comments

USD/JPY Sits at Support, Outlook Hinges on Fed Chair Yellen Comments

David Song, Strategist

Talking Points:

- DAX (GER30) at Risk of Extending Bearish Formation on Upbeat ECB.

- USD/JPY Sits Near Support; Outlook Hinges on Chair Yellen Comments at Fed Economic Symposium.

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

DailyFX Table
TickerLastHighLowDaily ChangeDaily Range
GER301221512259121702989

The DAX outperforms its major counterparts, with GER30 at risk for a larger advance should European Central Bank (ECP) President Mario Draghi endorse a wait-and-see approach for monetary policy.

President Draghi may continue to divert attention away from monetary policy as the Governing Council plans to decide the fate of the quantitative easing (QE) program in autumn, and the DAX may face a more bullish fate as ECB officials appear to be in no rush to move away from the highly accommodative stance.

However, recent comments from ECB board member Ardo Hansson suggest the Governing Council may wind down its asset-purchases ahead of the December deadline as central bank officials are ‘more upbeat about Europe than we were a while ago,’ and the DAX stands at risk of extending the bearish formation carried over from June if the Governing Council shows a greater willingness to taper its asset-purchase program over the coming months.

GER30 Daily Chart

GER30 Daily Chart

Chart - Created Using Trading View

  • Near-term outlook remains mixed as GER30 continues to operate within the downward trending channel from June, while the Relative Strength Index (RSI) highlights a bullish trigger as it appears to be breaking out of a similar formation.
  • Failure to test the 200-Day SMA (11,987) may open up the topside targets, with a break/close above the 12,320 (50% expansion) hurdle opening up the next region of interest around 12,520 (61.8% expansion)>
  • However, a move below the moving average may spur a more meaningful run at the former-resistance zone around 11,830 (100% expansion) to 11,870 (23.6% expansion), with the next downside target coming in around 11,610 (78.6% retracement)
TickerLastHighLowDaily Change (pip)Daily Range (pip)
USD/JPY109.33109.46108.852961

USD/JPY traders may largely ignore Japan’s Consumer Price Index (CPI) as market attention turns to the Kansas City Fed Economic Symposium in Jackson Hole, Wyoming.

All eyes are on Chair Janet Yellen as the central bank head is scheduled to speak on Friday, and the fresh comments may heavily impact the near-term outlook for the dollar-yen exchange rate especially as the Bank of Japan (BoJ) appears to be on course to carry the Qualitative/Quantitative Easing (QQE) program with Yield Curve Control into 2018. The U.S. dollar may face a bullish reaction if Chair Yellen warn of an imminent rate-hike, and Fed officials may stay on course to further normalize monetary policy over the coming months as ‘the Committee expects to begin implementing its balance sheet normalization program relatively soon.’

However, the prepared remarked may fail to boost interest-rate expectation as the speech will focus on financial stability, and the Federal Open Market Committee (FOMC) may merely attempt to buy more time at interest rate decision on September 20 as many officials‘saw some likelihood that inflation might remain below 2 percent for longer than they currently expected, and several indicated that the risks to the inflation outlook could be tilted to the downside.’

See how shifts in USD/JPY retail positioning are impacting trend- Click here to learn more about sentiment!

USD/JPY Daily Chart

USD/JPY Daily Chart

Chart - Created Using Trading View

  • USD/JPY may continue to consolidate as it struggles to push back above the 110.00 (78.6% expansion) hurdle, with the near-term outlook capped by the Fibonacci overlap around 111.10 (61.8% expansion) to 111.60 (38.2% retracement) as the pair preserves the range from earlier this month.
  • Nevertheless, lack of momentum to test the key support zone around 108.30 (61.8% retracement) to 108.40 (100% expansion) may generate a more meaningful recovery especially as price and the Relative Strength Index (RSI) appear to be breaking out of the bearish formation carried over from the previous month.
  • Next topside hurdle comes in around 112.40 (61.8% retracement) to 112.80 (38.2% retracement), which lines up with the 200-Day SMA (112.47), followed by the top of the broader range around 113.80 (23.6% expansion) to 114.30 (23.6% 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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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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