USD/JPY Forecast: Yen bears & BOJ both heave a sigh of relief

Both Bank of Japan (BOJ) and Yen bears finally breathe a sigh of relief as Dollar-Yen pair spiked on Friday to a high of 101.94 after Fed’s Janet Yellen, during her speech at Jackson Hole event, said the case for ‘rate hike’ has strengthened. The hawkish comment was initially met by skepticism, leading to dollar sell-off, but eventually treasury yields spiked leading to a broad based dollar rally.

Markets still don’t see Fed moving rates in September, however, Yellen’s comments have surely left the doors open for a move in December. As mentioned in Friday’s report, the bullish sentiment on Yen was looking slightly exaggerated, hence the pair was expected to spike even if Yellen’s speech was mildly hawkish.

The currency pair is likely to extend gains this week, especially if the US data sets – personal spending and income report due today and Friday’s non-farm payrolls report add to the evidence the ‘case for rate hike has strengthened’.

As mentioned numerous on occasions, the pair is at the mercy of Fed rate hike bets, hence data releases out of Japan are unlikely to have any impact on the dollar-yen pair.  

Technicals – Eyes gains beyond 50-DMA

Daily chart

• Pair’s jump to a high of 101.94 on Friday following a week long consolidation in range of 100.00-100.71 coupled with bullish break in daily RSI and MACD suggests the spot is likely to test 50-DMA hurdle of 102.74.
• Rejection at 50-DMA could result into pull back to short-term moving averages – 5 & 10, which have confirmed bullish crossover, thus indicating dip demand.
• Once 50-DMA is pierced on the higher side, the spot is likely to test supply around 104.50-105.00 levels (falling trend line on the daily chart). On the larger scheme of things, only a daily close above 105.00 would signal trend reversal.
• On the lower side, only the daily close below 100.71 (50% of 2011 low – 2015 high) would signal bullish invalidation.

AUD/USD Forecast: Three-month long uptrend ended on Friday

Aussie dollar spiked to a high of 0.7692 levels only to surrender gains and end the day lower at 0.7559 levels. The currency has extended losses in Asian session today to 0.7530 levels.

Technicals – More losses below 100-DMA level of 0.7500

Daily chart

• Multiple rejections at 0.75 handle earlier this month followed by a breach of rising trend line drawn from May 30 low and July 27 low suggests the spot is heading southwards to 0.7420(July 27 low).
• Bearish break in daily RSI and MACD moving below zero line only adds credence to the bearish price action on the daily chart.
• 100-DMA level of 0.7500 could offer some support. A rebound from the same could be met with fresh offers. Short-term bearish invalidation is seen only if prices see a daily closing back above rising trend line.

NZD/USD Forecast: Friday’s selling accompanied by strong volumes

The action in the NZD/USD pair mimicked other majors in a sense that initial spike post Yellen was quickly undone amid broad based USD rally. The pair clocked a high of 0.7380 before deflating to 0.7231 levels. The currency pair is going nowhere in the Asian session today and was trading around 0.7225 levels at the time of writing.

The fall should not have come as a surprise to readers as we had taken a note of the volume divergence in Friday’s report. What is worth noting now is that volumes spiked during Friday’s sell-off, which suggests the weak trend is here to stay.

Technicals – More losses below 0.7205

Daily chart

• Friday’s sell-off on strong volumes suggests the bears may make their presence felt, especially if the bird breaks below 0.7205 (38.2% of July 2014 high and Aug 2015 low).
• However, note that daily RSI and MACD are yet to turn bearish as opposed to the bearish move seen in the indicators on AUD/USD and USD/JPY pair.  This makes the Kiwi relatively resilient and hence crosses – AUD/NZD could remain under pressure & NZD/JPY could rally.