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Talking Points:
- USD/JPY Technical Strategy: Flat, Awaiting Breakout
- Recent Spike Fails To Take Out Key Resistance at 123.75
-USD/JPY Key Support Going Forward: 120.00 Late October Low
Markets received a late December surprise from the Bank of Japan in the form of QE expansion. While maintaining the current stimulus program of expansion at an annual pace of 80 trillion yen, nearly $US656b, traders were surprised by details in the BOJ’s statement. The BoJ noted a change to maturity of holdings as well as expand the annual purchase of 3 trillion yen worth of exchange-traded funds or ETFs, the bank established a new program to buy 300 billion yen in ETFs. The additional ETF purchase shows that there is no plan to taper soon, and now traders look to the April BoJ meeting for further stimulus. Until then, the market will likely be driven by risk sentiment abroad.
USD/JPY saw a large range of 250 pips as the BoJ data was digested. While the market remains choppy, attention should be paid toward the November high of 123.75. A break and close above that level could well show we are on our way to the June / August high range of 125.25/85. Support at 120.00 appears to underpin price, but even a break below 120 could fail to bring out the JPY buyers many expect. Since the May 2013 top, USDJPY has had the propensity to correct the larger uptrend with long and drawn out sideways consolidations. Should this play out once more, we could see a sideways move until mid-2016 that has breakouts acting as a trap as the market mean reverts. Only a break below the August low would take a triangle consolidation out of the picture.
While the price has traded sideways in 2H2015, the larger picture appears favorable for bulls as the Federal Reserve surprised even USD Bulls while the BoJ showed that new forms of easing are still welcome for their monetary policy plans. Of the three common scenarios in a market, up, down, or sideways, up remains preferred due to fundamental and technical factors. Should the bullish break above 123.75 happen, we can use the post-BoJ low of 121.05 as support against the view of new highs.
