FX Board: Yen rallies on BoJ confusion – but does move stick?

Key FX developments today

• The yen crosses made the most noise today after a huge pump and dump overnight on what was initially read as a new set of measures from the BoJ, but on closer inspection, merely proved to be an insignificant and poorly-understood tweaking of existing QQE measures with no addition to asset purchases.

• USDCAD sprinted all the way for a touch of 1.400, last seen in 2004, before easing back a bit, after weak Canadian CPI data and another downdraft in oil prices pressured the suffering loonie.

• USD pairs outside of USDJPY and USDCAD were relatively quiet today.

The key from here is to understand if the JPY action overnight was significant or merely an aggravated move triggered by the volatility and confusion surrounding the Bank of Japan meeting and aggravated by increasingly poor liquidity as the holidays/end-of-year approach. Risk appetite is a key element in that equation, just as it is key for whether EURUSD manages to break down through the downside swing zone of 1.0800-1.0730 or squeezes back toward 1.10+ (the latter risk higher on risk-off.)

USDJPY

It will be important to see how we close the day/week today to get a firmer sense of the quality of this USDJPY move today, but any close significantly below 122.00 raises the risk that we need to focus back on the downside supports. Note the Ichimoku levels and 200-day moving average in play, followed by the 120.35 range support and then not much until 118.00/50. To the upside, we need a quick recovery back above 122.25 to suggest that this was a transitory case of bad nerves driven by this odd and unanticipated move by the BoJ.

GBPJPY - weekly

The technicals here look far more ominous than they do for USDJPY at the pair is making a bid today to take out the weekly Ichimoku cloud level, after already having broken down through the rising trendline. Note that this weekly cloud has not been taken out since way back in 2012. On a flat-line basis, the next important levels are 180.00 and 175.00 looks especially pivotal.

USDCAD

This pair continues to find upside, having touched 1.40 today, a level last seen in 2004. We'll steer clear of trying to call a top, which will likely require a solid rebound in oil prices, but sometimes these round levels are quite sticky, even if we see some overshoot in the days ahead.