JAPANESE YEN PRICE, CHARTS AND ANALYSIS:
- Yen Selloff Resumes Following Yesterday's Gains on Governor Ueda Comments.
- BoJ Policy Pivot Unlikely to Occur Anytime Soon as Wage Growth Remains Key for the BoJ.
- USD/JPY Eyes 150.00 with EUR/JPY Printing a Head and Shoulders Pattern. Chance of Break Lower for EUR/JPY?
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YEN FUNDAMENTAL BACKDROP
The Japanese Yen has resumed its selloff in the European session today following yesterday's gains. Comments by Bank of Japan Governor Ueda helped the Yen start the week on the front foot, but it was unlikely to last. It would appear at this stage that Governor Ueda is using his comments as a softer approach to FX intervention. I do believe the Governor is serious about ending the negative rate environment (the reason he was chosen), but this will not only depend on inflation but whether or not wage growth remains consistent and above inflation.
We heard comments in the Asian session today as well from Finance Minister Shunichi Suzuki who left the ball firmly in the Bank of Japan’s (BoJ) court. The Finance Minister stated that it is up to the Bank of Japan to decide what policy steps it takes while refusing to be drawn into a debate following Governor Ueda’s comments. Finance Minister Suzuki went further and clarified that he expects the BoJ to co-ordinate closely with Government and guide policy appropriately based on economic, price and financial conditions so (the bank's) inflation target can be achieved in a sustainable and stable manner. There is optimism that the BoJ will reach its inflation target soon, will that be enough? Will wage growth be more important to BoJ officials? I do believe so.
EXTERNAL FACTORS CONTINUE TO DRIVE YEN PAIRS
As I had discussed yesterday Yen pairs and USDJPY in particular did come under selling pressure before bouncing today as the Dollar Index (has started the day on the front foot).
Japanese Yen pairs continue to be driven by external factors with a lot in terms of high impact data releases ahead from both the US and Japan. The US side brings US CPI data which could really create volatility. There is also PPI data from Japan as well as the Reuters Tankan Index which could show some signs of where the Japanese Economy currently rets.
For all market-moving economic releases and events, see the DailyFX Calendar
PRICE ACTION AND POTENTIAL SETUPS
EURJPY
EURJPY has kept up with the trend in Yen pairs of late, with selling pressure proving to be short-lived thus far. Yesterday saw the Yen start the week positively but EURJPY failed to close below the key confluence area around the 157.00 handle.
There does appear to be a head and shoulder pattern in play as well with the neckline also resting around the 157.00 handle. A daily candle close below 157.00 may open up the possibility of further downside but should we see a rate hike from the ECB this week it could throw the technical into a short-term frenzy.
An ECB rate hike could scupper the idea of further downside at least in the short-term while market participants gauge the ECB outlook moving forward. I do however believe that any break to the downside may come under buying pressure even if we get a pause, purely from a fundamental standpoint.
EURJPY Daily Chart
Source: TradingView, prepared by Zain Vawda
Key Levels to Keep an Eye On:
Support levels:
- 157.00 (50-day MA)
- 155.50
- 154.21 (100-day MA)
Resistance levels:
- 158.30
- 159.00
- 160.00
USDJPY
USD/JPY Daily Chart
Source: TradingView, prepared by Zain Vawda
From a technical perspective, USD/JPY pushed lower in a similar vain to EURJPY but failed to close below 146.50 support level. An aggressive bounce today as the Dollar Index (DXY) recovers has seen USDJPY put in gains of around 70 pips at the time of writing.
Today’s daily candle is on course for a bullish engulfing close which could lead to further upside tomorrow. The only factor that could scupper a fresh high could be a soft US CPI print tomorrow.
Should CPI come in higher than forecast there is every chance that we make a run for that key 150.00 psychological level which could be the straw that breaks the camel's back and lead to FX intervention by the BoJ. This week could turn into a really interesting one for Yen pairs as a whole.
Key Levels to Keep an Eye On:
Support levels:
- 146.50
- 145.00
- 143.60 (50-Day MA)
Resistance levels:
- 147.80
- 150.00 (Psychological level)
Taking a quick look at the IG Client Sentiment Data which shows retail traders are 74% net-short on USDJPY.
For a more in-depth look at USD/JPY sentiment, download the free guide below.
| Change in | Longs | Shorts | OI |
| Daily | -6% | 0% | -2% |
| Weekly | -11% | 12% | 5% |
--- Written by Zain Vawda for DailyFX.com
Contact and follow Zain on Twitter: @zvawda
