USD/JPY hit 16-month low, commo currencies under pressure

Forex News and Events

Japanese yen strengthen amid faltering confidence in BoJ (by Arnaud Masset)

A usual during period of high uncertainties and growing fear of recession, investors are piling into safe-haven assets, such as the Japanese yen, sovereign bonds and the Swiss franc, while dumping riskier assets such as equities and EM currencies. Unfortunately for the Bank of Japan, this situation is far from being convenient as it goes completely against what the Central Bank has been trying to achieve since it decided to implement its Quantitative and Qualitative Easing back in 2014. Since the beginning of 2016, the Japanese yen appreciated almost 8% against the US dollar. Besides its safe haven property, the rise is mostly due to the combined effect of the market’s fading confidence in the BoJ’s ability to create a weaker yen but also the belief that the Fed will be unable to go on with its rate hike cycle as the global growth outlook worsen - Janet Yellen hinted that the market turmoil may delay further the rate hike cycle.

However it is worth noticing that the BoJ has a share of responsibility in the strengthening of the yen. At the end of January the Bank of Japan voted to adopt a negative interest rate policy (NIRP), hoping that it would help to maintain the yen at low levels and even increase the pressure on the Japanese currency. Initially, the market reacted accordingly by pushing USD/JPY to 121, up 2.5%. However when market participants realised that the -0.1% interest rate was going to be applied to a ridiculous part of the total current account balances (the policy rate balances), while the two other main parts (basic balance and macro add-on balance) are not subject to negative rates (+0.1% and 0.0% respectively), they piled into the yen even more than before.

A fresh batch of economic from Japan are next week and will shed more light on the health of the economy. For now, USD/JPY stabilised between 112 and 112.50. We believe there is still some downside potential for the pair; however traders are still trying to understand what happened yesterday - when USD/JPY spiked two figures in less than 5 minutes - and will likely remain sidelined before the weekend break.

Gold higher, crude oil lower, mixed feelings for Australia and Canada (by Yann Quelenn)

Low oil prices are set to continue. It seems that the era of oversupply is far from being over. Brent is trading around $31 a barrel and Australia and Canada’s weakness should continue. Their current account are both in deficit. Australia has a current account deficit of $21.2 billion and Canada is lying at $11.5 billion. Their economies are mostly reliant on financial inflows coming from their commodities industries. We believe that the current commodity war will continue as long as the global environment and especially geopolitical aspects remain uncertain.

In Australia, the Reserve Bank announces it is keeping its interest rates at 2% amid strong recent unemployment data for the last quarter 2015. Yet, Australia is very dependent on China which represents its main partner. There is evidence that the Chinese slowdown is not over (lower gas consumption growth for example). As a result, aggregated demand for Australia’s goods should keep on suffering and impact overall Australian revenues. The Aussie remains under significant pressure despite trading above the psychological level of 0.70 U.S. dollar. This is why Governor Steven is now envisaging to further ease monetary policy.

For the time being, there is one silver cloud for Australia and Canada. Gold has soared by 16.74% since the beginning of the year. This should provide some additional revenues necessary for these two countries. Yet, we remain bearish on the Aussie and on the Loonie over the medium-term.

Crude Oil - Setting A New 13-Year Low

The Risk Today

Yann Quelenn

EUR/USD keeps on pushing higher. Hourly resistance lies at 1.1387 (20/11/2015 high). Hourly support may be found at 1.0711 (05/01/2016 low). Yet, expected to show further increase. In the longer term, the technical structure favours a bearish bias as long as resistance holds. Key resistance is located region at 1.1453 (range high) and 1.1640 (11/11/2005 low) is likely to cap any price appreciation. The current technical deteriorations favours a gradual decline towards the support at 1.0504 (21/03/2003 low).

GBP/USD's short-term momentum is still lively. Hourly resistance can be found at 1.4668 (08/02/2016 high). Hourly support can be found at 1.4081 (21/01/2015 low). The technical structure looks very positive. Expected to show further increase. The long-term technical pattern is negative and favours a further decline towards the key support at 1.3503 (23/01/2009 low), as long as prices remain below the resistance at 1.5340/64 (04/11/2015 low see also the 200 day moving average). However, the general oversold conditions and the recent pick-up in buying interest pave the way for a rebound.

USD/JPY's sharp decline is now pausing. Hourly resistance lies can be found at 123.76 (18/11/2015 high). There is no hourly support for the time being. The road is wide open for further decline. The strong support at 115.57 (16/12/2014 low) has been broken and fully erased. We start favouring a long-term bearish bias. A gradual rise towards the major resistance at 135.15 (01/02/2002 high) seems now less likely. Another key support can be found at 105.23 (15/10/2014 low).

USD/CHF is pausing between 0.9700 and 0.9800. Hourly resistance can be found at 1.0328 (27/11/2015 high). The technical structure suggests that the road is wide open for further short-term decline toward Hourly support at 0.9476 (15/10/2015 low). Expected to show continued weakness In the long-term, the pair is setting highs since mid-2015. Key support can be found 0.8986 (30/01/2015 low). The technical structure favours a long term bullish bias.

Resistance and Support: