USD/JPY Forecast: Trendline support could be put to test ahead of US ISM non-manufacturing release

Dollar-Yen pair clocked a high of 104.14 levels in the Asian session on Monday before Bank of Japan (BOJ) governor Kuroda derailed the dollar rally by talking about the limits to what the BOJ can achieved with respect to debt monetization. Kuroda assured markets that monetary policy has not reached its limits, although markets read it the other way round. Thus the spot fell to a low of 103.14 before recovering slightly to end the day around 103.40.

US desks were closed on Monday hence the activity was thin, especially in the North American session.

Kuroda acknowledgement that monetary policy has limits may have come little too late. Furthermore, the timing of his comments is interesting given the USD/JPY exchange rate appears to have bottomed and moving higher. Moreover, Kuroda’s comments put a speed breaker.

Focus on US ISM non-manufacturing

The main even for the day is the US ISM non-manufacturing release. The employment sub index is unlikely to move markets this time around since we have already had a poor non-farm payrolls release. Nevertheless, the bid tone around USD would strengthen in case the headline figure blows past expectations. On the other hand, the USD/JPY pair could slide if the ISM number is a disappointing.

Technicals – Eyes trendline support

Daily chart

• Falling trend line drawn from Jan 29 high and May 30 high comes around 103.00 levels today.
• Despite pair’s rally from 99.54 to 104.13 the subsequent retreat to 103.14 suggests a short-term consolidation with downside bias is likely to unfold before a fresh rally is seen.
• The daily MACD and RSI stay well above 50.00, which add credence to view that fresh demand is likely on dips.
• The corrective move could take the pair down to 103.00 – 102.70 (50-DMA). A rebound from there followed by a break above 104.13 on day end closing basis would open doors for 105.25 (100-DMA).

AUD/USD Forecast: Awaits RBA rate decision

Aussie is on the rise while the Australian stock market has given up some of yesterday's strong bounce amid broad selling ahead of this afternoon's rates decision - the last under RBA governor Glenn Stevens. Markets are expecting a status quo policy. There is little scope for a surprise on the ‘forward guidance’ front given this last rate decision under governor Stevens.

Nevertheless, markets will be paying close attention to the wording on the next move in interest rates, exchange rate, inflation and labour market outlook. Aussie could soar in case the statement reads “there is no need for an aggressive policy easing as of now”.

Technicals – Trend line hurdle intact

Daily chart

• Rising trend line drawn from May 30 low and July 27 low comes around 0.7090.
• Despite Aussie’s rebound last week from 100-+DMA support, the subsequent failure on Friday and Monday to hold/break above the rising trend line suggests the odds of a similar move today and a fall back to 0.7540 levels are high.
• On the higher side, we need a day end close above 0.7616 as that would signal bearish invalidation.