USD/JPY – Falling channel intact, Can we trust Kuroda on helicopter money?

USD/JPY – Falling channel intact, Can we trust Kuroda on helicopter money?

USD/JPY pair rose as high as 107.48 on Thursday only to deflate to a low of 105.42 after BOJ governor Kuroda flatly rejected the use of helicopter money (permanent increase in monetary base to combat deflation). Losses in the pair also dragged US stocks lower, although the down move in Dow was moderate. The weak closing in the pair kept the falling channel formation on the daily chart intact.

Never believe anything until it is officially denied – Claud Cockburn

A political quote – Never believe anything until it is officially denied – is to a great extent applicable in the world of central banks as well. Time and again, official denial by central bank regarding an unconventional monetary tool actually turned out to be a contrarian indicator. Take Kuroda’s example for now –

• He surprised markets with a big bazooka on Oct 31, 2014, but heading into the decision he chose not to telegraph the move and repeatedly downplayed the necessity to do more.
• The bank moved rates to negative territory on Jan 29. However, just a week earlier i.e. on Jan 21 Kuroda had expressly stated that there is no plan to adopt negative rates for now.

It is quite clear that Kuroda is against telegraphing big moves and loves to shock and surprise markets. This forces to think whether we can trust Kuroda on helicopter money. He has denied plans to implement ‘helicopter money’ a few days ahead of BOJ meeting. Is the surprise in store for the markets? If history is to be believed, then a big bazooka is in waiting.

Also note, much of the post Brexit rally in US stocks has been due to sharp rise in USD/JPY (carry trade). Consequently, no stimulus in Japan means a sharp reversal in USD/JPY and a possible pull back in US equities.

Technicals – 23.6% Fibo of 2015 high-2016 low stands exposed

Daily Chart

• Dollar’s retreat from yesterday’s high of 107.48 and a daily closing back inside the falling channel on the daily chart suggests a temporary top has been made and sideways to bearish action is likely heading into the weekend.

• Thursday’s pull back followed by pair’s failure to hold above 50-DMA level of 106.03 in Asian session today indicates the support at 105.17 (23.6% of 2015 high-2016 low) could be put to test before a rebound is seen.

AUD/USD Forecast- inverse head and shoulder on hourly

Daily Chart

• Despite Aussie’s sharp decline in the first three trading sessions of the week after last Friday’s failure at key resistance of 0.7643-0.7672, a subsequent rebound from the daily rising trend line and a breach of hourly falling trend line yesterday suggests a short-term loss of bearish momentum and could yield a break above 0.7514 (inverse head and shoulder + 5-DMA) and move to 0.7555-0.7560.
• A bullish break from inverse head and shoulder would signal a short-term bottom is in place at 0.7453.
• On the lower side, only a day end closing below the rising trend line support seen today at 0.7466 would suggest the extension of the bearish move from last Friday’s high of 0.7676.

NZD/USD Forecast: Sideways to bearish action likely

Daily Chart

• Despite Kiwi’s recovery from yesterday’s low of 0.6951 the currency pair is likely to have a hard time moving through confluence of resistance in range of 0.70-0.7020 (hourly 50-MA + 50-DMA + falling trend line on hourly), courtesy of rising RBNZ rate cut bets and Fed rate hike bets.
• Nevertheless, short-term loss of momentum following a 7-day losing streak suggests yesterday’s low of 0.6951 is likely to hold.
• On the higher side, corrective move could gather pace only if the spot takes out 0.7020 (falling trend line on hourly).