Talking Points:
- USD/JPY trading near 100, stoking Yen “jawboning”
- All eyes on FOMC meeting minutes as focus shifts to Fed rate hike speculation
- US Dollar outperformed overnight, perhaps on prepositioning ahead of the main event
The USD/JPY is hovering above the 100 figure after the pair saw a break below the level quickly recover yesterday as hawkish comments from Bill Dudley hit the wires, with the New Yok Fed President saying the market is underpricing the probability of Fed tightening.
Around the time of the move to 100, Japan’s vice Finance Minister Asakawa (responsible for FX markets) noted that they are watching the foreign exchange market with a strong sense of concern.
With the Yen getting stronger, risks of actual Yen intervention increase as it looks like the usual “Jawboning” from Japanese officials are falling short at this time.
Looking ahead, all eyes are on the release of minutes from July’s Federal Reserve monetary policy meeting for possible speculation on Fed tightening.
Against this backdrop we will form our outlook and look to find short term trading opportunities using different tools such as the Grid Sight Index (GSI) indicator.
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Minutes from July’s FOMC meeting headline the economic docket in the hours ahead. The US Dollar outperformed overnight, perhaps on prepositioning backed by the aforementioned hawkish comments from Dudley.
Indeed, markets are now pricing a 51% chance of a Fed rate hike at the December meeting, higher than yesterday, despite a lower than expected CPI reading.
With basically a 50/50 perceived chance of a hike in December, there is still scope for the US Dollar to move to either side on fed tightening speculation, possibly implying that if the minutes from the July meeting mirror Dudley’s comments, the US Dollar might be in for a sharp move higher after yesterday’s sell off.
USD/JPY Technical Levels:
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We use volatility measures as a way to better fit our strategy to market conditions. The Yen is expected to be the most volatile currency versus the US Dollar (based on 1-week implied volatility measures), but the market is seeing extremely low levels of volatility with measures such as VIX hitting their lowest levels in two years.
In turn this may imply that range bound trading plays could be appropriate at the moment, but a significant catalyst like the FOMC minutes could further spur the pickup in activity witnessed yesterday.
USD/JPY 30-Min Chart (With the GSI Indicator): August 17, 2016
(Click to Enlarge)
The USD/JPY is trading above potential support around the 100.50 level at the time of writing, with GSI calculating significantly higher percentage of past movement to the downside in the short term.
The GSI indicator above calculates the distribution of past event outcomes given certain momentum patterns. By matching events in the past, GSI describes how often the price moved in a certain direction.
You can learn more about the GSI here.
Further levels of support might be the big 100 level, a zone below 99.50 and the 99 handle.
Possible levels of resistance on a move higher might be 101, an area around 101.50, the 102 handle and the zone above 102.345.
We generally want to see GSI with the historical patterns significantly shifted in one direction, which alongside a pre-determined bias and other technical tools could provide a solid trading idea that offer a proper way to define risk.
We studied over 43 million real trades and found that traders who successfully define risk were three times more likely to turn a profit.
Read more on the “Traits of Successful Traders” research.
Meanwhile, the DailyFX Speculative Sentiment Index (SSI) is showing that about 80.73% of traders are long the USD/JPY at the time of writing, on the wrong side of the move lower, apparently trying to pick the bottom. The SSI is mainly used as a contrarian indicator implying possible weakness ahead.
You can find more info about the DailyFX SSI indicator here
--- Written by Oded Shimoni, Junior Currency Analyst for DailyFX.com
To contact Oded Shimoni, e-mail oshimoni@dailyfx.com
Follow him on Twitter at @OdedShimoni
