USD/JPY Forecast: Bearish divergence on 1-hr chart ahead of US ISM non-manufacturing release

Dollar-Yen pair extended its winning streak on Tuesday, clocking an intraday high of 102.97 levels before ending the day around 102.89. The currency pair is losing height in Asia, now trading around 102.75 levels. The drop in the Yen was in line with the spike in the December Fed rate hike probability to 61%. Furthermore, sharp sell-off in Gold led to broad based USD strength, while talk of ECB E Taper pulled up EUR/JPY pair, thus adding to the bearish tone around Yen.

Focus on US ISM non-manufacturing

The index is seen coming-in at 53.00 for September compared to August figure of 51.4.  Investors would want to see a strong employment sub index as that would suggest a possible blow out non-farm payrolls figure on Friday. However, it is difficult to say that a strong ISM non-manufacturing number would be enough to push Dollar-Yen higher, given that Deutsche Bank is not out of the woods yet and a possible drop in share price could strengthen the big tone around Yen.

ECB QE Taper talk is largely aimed at engineering a steeper yield curve and could weigh over equity markets. However, that may not lead to Yen strength since EUR/JPY cross is seen rallying on the speculation. Furthermore, European banking shares could react positively to ECB QE Taper news.

Thus, overall the spot could follow technicals ahead of the ISM non-manufacturing release, which as of now appear in favor of a minor correction.

Technicals – Bearish price-RSI divergence on 1-hr chart

Hourly chart

• Bearish price RSI and MACD divergence seen on the hourly chart suggests the spot could revisit area around 102.20 levels before making another attempt to score gains above 103.00 levels.
• The gap between 5-DMA and price has widened, while the 50-DMA is still sloping downwards, hence the prospects of sideways to negative action are high.
• Bullish invalidation is seen only if the spot closes below 50-DMA level of 101.68.
  On the higher side, breach of resistance at 103.36 would expose 103.70 (100-DMA + monthly pivot resistance).

AUD/USD Forecast: H&S inside expanding channel

4-hr Chart

• Pair’s retreat from yesterday’s high of 0.7691 coupled with the bearish 5-DMA and 10-DMA crossover suggests prices are more likely to complete head and shoulder formation by moving lower to the neckline level around 0.7577 levels, which if breached would open doors for a deeper retracement to 0.75-0.7470 levels.
• On the higher side, only a daily close above 0.77 would suggest continuation of the rally from 0.7442 (Sep 13 low).

NZD/USD Forecast: Head and Shoulder breakdown

NZD/USD pair clocked a high of 0.7311 levels before falling sharply to a low of 0.7198 levels on the back of a drop in the prices at the GlobalDairyTrade (GDT) price auction. The GDT price index fell 3% to $2,880, down from $2,975 at the previous auction two weeks ago. Whole milk powder dropped 3.8% as well. This was the first decline since July. The pair has extended yesterday’s drop to trade around 0.7185 levels in Asia.

Techncials - H&S breakdown

Daily chart

• Pair’s breach of rising trend line, followed by a break below head and shoulder neckline and falling channel suggests bears have regained control and could push the spot to key psychological level of 0.70 over the next few days.
• On the higher side, only a break above yesterday’s high of 0.7311 would signal bearish invalidation.