USD/JPY: bulls stay in control on central banks divergence, eyes on 111.39
|- USD/JPY holding above the psychological 110.50 level in Tokyo, (bid from 109.91 fuelled by ECB), with eyes to the BoJ.
- Looking ahead, the BoJ is up but it has already made it clear...
USD/JPY is giving back some ground in Tokyo, so far not by much, 110.66 to 110.51 having been consolidated here between 110.69/51 for the best part of the US session post the ECB fireworks.
The ECB put a serious spanner in the works of the bull's case for an initial test at the 38.2% Fibonacci retracement at 1.1855 where bulls anticipated a more hawkish outcome. Instead, the ECB delivered dovish forward guidance that sent the euro off a cliff, for the worst performance vs the greenback for two years. Subsequently, the DXY went bid and USD/JPY recovered from the previous day's supply, reversed a full 100% in fact from 109.91 to the aforementioned highs post the retail sales beat; (May Retail Sales M/M, 0.8% vs estimate 0.4% and 0.3% prior. The DXY rallied between a range of 93.1930-94.9310).
However, there was little impact on US yields with the US 10yr treasury yield ranging sideways between 2.93% and 2.96% and the 2yr yields inched up slightly from 2.55% to 2.57%. The Fed fund futures yields price 1 ½ more hikes in 2018. (German 10yr government bond yields fell sharply after the ECB statement, from 0.50% to 0.42%. French bond yield fell 8bp, Italy -6bp).
BoJ is up but it has already made it clear
Looking ahead, the BoJ is up but it has already made it clear; no change should be expected while inflation remains off target; Analysts at Westpac expect the BoJ to be keeping the 10 year bond yield around 0%, a -0.1% deposit rate on banks’ excess balances held at the BoJ and, less justifiably, claiming to purchase JGBs at an annual pace of JPY80 trillion.
"It would be sensible to drop the latter pledge and keep its 0% “yield curve control” policy which has been successful, but the BoJ seems worried about the market reaction if they did. There has been no indication from officials that a policy change is imminent, with inflation of just 0.4%yr on the measure it wants to raise to 2%. There is no fixed time for the statement but the last release was around 1pm Syd/11am Sing/HK."
USD/JPY levels
Valeria Bednarik, chief analyst at FXStreet explained that in the 4 hours chart, the pair briefly broke below the key Fibonacci support at 110.15 but holds above it:
"Technical indicators regained the upside, heading into the Asian session with upward slopes but well below their previous weekly highs. Moving averages in the mentioned chart remain well below the current level and with no clear directional strength. Mild-bullish, the pair needs to surpass its weekly high of 110.84 to complete a 100% retracement to May's high of 111.39."
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