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USD/JPY Outlook Post Fed and BOJ as Skepticism Rises

USD/JPY Outlook Post Fed and BOJ as Skepticism Rises

2016-09-22 09:29:00
Oded Shimoni, Junior Currency Analyst
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Talking Points:

- USD/JPY approaching the big 100 level again, retrace might be compelling for Yen bulls

- Market skepticism in central banks seems to be a main take away from yesterday’s events

- “Second tier” US data ahead could provide short term swings on deviations from expectations

The USD/JPY is approaching the 100 level following yesterday’s central bank bonanza which saw the BOJ shift focus to yield curve control, while the Fed signaled a potential December move on rates, but reduced the longer term outlook.

“Second-tier” US Data is on tap today, with housing data in focus for potential short term price swings.

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.

USD/JPY Outlook Post Fed and BOJ as Skepticism Rises

Click Here for the DailyFX Calendar

US Initial Jobless Claims and Continuing Claims is set to hit the wires in US trading hours. The Initial Jobless Claims measure is expected to print 261K, higher than the 260K prior print. The Continuing Claims figure is set to remain unchanged at 2143K.

US Housing data is also on the docket. Existing Home Sales is expected to show a rise of 1.1% in August versus a -3.2% prior figure.

Significant deviations from expectations might provide opportunities in today’s session, possibly adding to momentum or providing more favorable prices for USD/JPY bears.

Indeed, market reaction to the central banks announcements seemed to have been one of skepticism. The Fed signaled a potential move in December with 3 voting members opting for a hike, but reduced the longer term rates path and economic outlook, which appears to have put the US Dollar under pressure in the short term.

With the Fed’s actions generally in line with expectations, the recent downside pressure might have more to do with the markets showing increasing conviction on a BOJ that is running out of ammo, as the central bank opted to tinker with its easing program to focus on controlling the yield curve in an effort to reduce pressure on bank’s margins following the BOJ’s NIRP.

USD/JPY Technical Levels:

USD/JPY Outlook Post Fed and BOJ as Skepticism Rises

Click here for the DailyFX Support & Resistance tool

We use volatility measures as a way to better fit our strategy to market conditions. The USD/JPY is seeing a significant, and understandable, decline in implied volatility measures after yesterday’s decisions are out of the way.

With that said, the Yen is still expected to be the most volatile currency versus the US Dollar.

In turn, this may imply that the break out type trades are preferable in the short term time frames.

USD/JPY 30-Min Chart (With the GSI Indicator): September 22, 2016

USD/JPY Outlook Post Fed and BOJ as Skepticism Rises

(Click to Enlarge)

The USD/JPY is trading near potential resistance at 101.00, with GSI calculating higher percentages of past movement to the downside in the short term from current levels.

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.

Other resistance levels to watch in the short term might be 101.25, 101.50, 102 and 102.80.

Levels of support seem clean at the round 00s and 50s, with the big 100 figure and 99.50 in focus.

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 82.7% of traders are long the USD/JPY at the time of writing, indicating an extreme reading, usually implying a short bias on a contrarian basis.

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

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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