USD/JPY Forecast: It’s only a matter of time before 50% Fibo support is breached

USD/JPY Forecast: It’s only a matter of time before 50% Fibo support is breached

Dollar-Yen pair hit a low of 100.67 yesterday after Fiscal stimulus details disclosed by Japanese government underwhelmed market expectations while the greenback suffered another round of broad based weakness. The sell-off gathered pace in early Europe when the pair traded around 102.00 levels. The details of the fiscal spending plan confirmed what markets already knew – The plan involves only about JPY 7 trillion of actual spending.

In US, the core personal consumption expenditure, which strips out volatile food and energy prices, rose 0.1% in June, compared to 0.2% rise in May. Personal income and spending matched previous month figures.  The data did little to halt the dollar sell-off/Yen rally.

The spot found support at 100.71 (50% of 2011 low – 2015 high) in the Asian session today and was last seen trading around 101.15. Bank of Japan (BOJ) minutes released today showed increasing concerns regarding the effectiveness of negative rates. Similar message had come out through previous minutes and hence is unlikely to have any impact on the pair.

Note once again, the burden of lifting USD/JPY has to be borne by US Fed (rate hike bets), which continue to fall each passing day. Other than that, the bond market sell-off in Japan (representing fiscal concerns) could weaken Yen. Other than these two factors, there is very little reason for a sustained Yen sell-off. Thus, upticks are likely to be met with fresh offers and it is only a matter of time before the pair has a re look at 100.00 levels. Friday’s payrolls report could provide a temporary lift, that too if the Fed rate hike bets pop following the data release. China services PMI figure due today, if prints below 50.00 would only strengthen the bid tone around Yen.

Technicals – corrective move could run into falling hourly trend line hurdle

Hourly chart

• Dollar’s rebound from 100.71 (50% of 2011 low – 2015 high) following a sharp sell-off on Friday and Tuesday could continue, but reckon the resistance around 101.60 (falling trend line hurdle on hourly chart) would hold given the bearish daily RSI and MACD and the rejection at larger daily falling trend line resistance last week, which suggested the pull back from post Brexit lows ended at 107.49.
• At the most, a rise to 101.60 levels could be followed by sideways action, allowing for 5-DMA to drift lower ahead of the weekend.
• On the lower side, a break below 100.71 could yield another wave of selling for 100.00 levels.

AUD/USD Forecast: July highs could be put to test on upbeat China data

Aussie suffered a brief drop to 0.7480 following RBA’s rate cut move before quickly recovering losses and extending gains to a high of 0.7638 levels before trimming the gains to end the day at 0.7607 levels. Sharp gains despite RBA rate cut was largely on the back of broad based US dollar selling. The rebound from 0.7480 could be extended further to July high of 0.7676 if the China services PMI numbers beats estimates.

Technicals – Rebound from rising trend line is bullish

Daily chart

• Aussie’s rebound from 0.7490 (50% of 0.7835-0.7145+ 100-DMA) followed by gains above rising trend line and a daily close above 0.7597 (23.6% of 0.6827-0.7835) suggests the prices could target July high of 0.7676 levels.
• Daily MACD has turned positive above zero, which adds further credence to the bullish price action.
• On a larger scheme of things, a daily closing above 0.7676 would open doors for a re-test of 0.7835 (Apr 21 high).
• On the other hand, only a daily closing below 0.7490 would signal bullish invalidation.

NZD/USD Forecast: Re-test of July highs likely

Daily chart

• Pair’s rebound from 0.7171 (23.6% of 0.6675-0.7325) amid bullish daily MACD and RSI followed by a daily closing well above Friday’s high of 0.7229 suggests the spot is likely to test 0.7325 (July highs).
• Spot has moderated somewhat to 0.7215 (76.4% expansion of 0.6347-0.7054-0.6675) due to negative RSI divergence on hourly. However, a rebound from here is likely, courtesy of bullish daily price action.
• On the lower side, only a daily closing below 0.7157 (previous day’s low)    would increase the odds of the pair forming head and shoulder formation on the daily chart.