USD/JPY Forecast: Doji on daily & potential inverse head and shoulder

USD/JPY Forecast: Doji on daily & potential inverse head and shoulder

Dollar-Yen pair fell to a low of 105.64 in Asia before moving back to just above 106.00 levels in early Europe and extending gains to 106.53 levels in the NY session; a move which was followed by a retreat and a day end closing at 106.10. The opening price was 106.15. The overall action produced a Doji candle stick pattern on the daily chart.

US housing starts and building permits number bettered estimate and strengthened the bid tone around the US dollar. The spot jumped to 105.64 levels before surrendering gains on IMF’s bearish global growth forecast. The fund cut its forecast for global economic growth by 0.1% to 3.1% for 2016. US growth forecast was revised by 0.2% to 2.5% in 2016.

IMF Forecasts in line with the pattern

Maury Obstfeld, the IMF’s economic counselor, said: “The first half of 2016 revealed some promising signs – stronger than expected growth in the euro area and Japan, as well as a partial recovery in commodity prices that helped several emerging and developing economies. As of 22 June, we were therefore prepared to upgrade our 2016-17 global growth projections slightly. But Brexit has thrown a spanner in the works.”

The comments are not surprising and neither is the bearish global growth forecast. There is pattern in IMF projections – Each calendar year begins on an optimistic note and as and how the year progresses the fund produces downward revision of growth forecasts. This pattern was pointed out by RBI governor Raghuram Rajan at a lecture this year.

Brexit is merely being blamed and given the major central banks are ready to print more, the bearish forecasts should not do a significant damage to risk sentiment. Consequently, dips in USD/JPY (or upticks in Yen) could be short lived.

Technicals – Still expecting a breather

Daily Chart

• Rally from June 8 low of 99.98 appears over stretched and thus short-term loss of momentum is likely.
• The Doji candle on the daily chart indicates just that and timing of the candle stick pattern is spot on as well, given we are within a striking distance from 106.64 (38.2% of 2011 low – 2015 high) and larger falling trend line resistance of 107.11 (could move to 106.64 over the next few days).
• Hence, upticks towards 106.64 could be met with fresh offers. A downside move to 105.69 (5-DMA) may happen in Asia, breach of which shall open doors for 105.0-104.63.
• On the higher side, we now need a convincing close above the larger falling trend line to signal continuation of the up move.

Potential inverse head and shoulder

• As said earlier, major central banks stand ready to deliver the goods, hence a major risk-off looks unlikely.
• Furthermore, improvement in the US data and heightened probability of fiscal+monetary stimulus in Japan would keep the gains in Yen under check.
• Consequently, a technical pull back to 104.19 (23.6% of 121.69-98.79) could be followed by a fresh rally towards 106-107, thus leading to inverse head and shoulder formation.

AUD/USD Forecast: Bullish invalidation seen below 0.7450

Daily chart

Despite Aussie’s bearish daily closing on Tuesday at 0.7503, a scope for recovery in Europe/US session remains intact as long as support at 0.7476 is intact and is followed by a move back above 0.7490 (50% of 0.7835-0.7145), in which case the bird could target 0.7545 (July 5 high).

On a larger scheme of things, bullish invalidation is seen only in case of daily closing below 0.7450 (rising trend line support on daily and also 38.2% Fibo of 0.6828-0.7835).

NZD/USD Forecast: EU aid & Gain in whole milk powder could stall sell-off

Kiwi dropped to a session low of 0.7010 on Tuesday before ending the day at 0.7052 levels. That was NZD’s 5th straight day of losses. Prices are down once again in Asian session today and appear on track to test yesterday’s low of 0.7010

EU aid and gain in whole milk powder could support NZD

As per dairy market experts, Kiwi could find support from the European Union's latest financial support package for the region's struggling farmers. The package was announced yesterday and dairy experts believe it could slow growth in milk production and help rebalance the market in the short-run.

Furthermore, the GlobalDairyTrade (GDT) auction held yesterday saw price index retreat to USD 2336 down from USD 2345 at the previous auction two weeks ago. In percentage terms the index was unchanged.  However, Whole milk powder rose 1.9 per cent to USD 2079 a tonne. Given, the possibility of short-term loss of momentum due to five day losing streak, the EU support package and rise in milk powder prices could become a catalyst for a technical correction.

A major trend reversal is ruled out, given the improvement in the US data and a high probability of RBNZ rate cut in August.

Technicals – Rejected at falling trend line

Hourly chart

• Pair’s failure to take out falling trend line resistance on the hourly chart has opened doors for a breach of yesterday’s low of 0.7010 and a move below 0.70 handle, although short-term loss of momentum could ensure a quick recovery back above 0.70 followed by a sideways to choppy trading.
• Corrective rally could be set in motion only if the spot takes out falling trend line hurdle and moves above 0.7058, in which case a slow rise to 0.7123 could be seen.