USD/JPY Forecast: Double bottom breakdown ahead of Jackson hole

Dollar-Yen pair is trading around 100.65 levels after having dipped below 100.00 levels a couple of times in the last week. Over the weekend, Bank of Japan (BOJ) governor Kuroda assured markets that the negative interest rate policy has not reached its limit and that there is room left for further rate cuts.

This may be the reason for the rise in the pair from 100.28 levels to near 100.70 levels. Kuroda’s comments are not at all surprising, still are enough for the oversold pair to correct somewhat.

As the low volume summer draws to close, investors are eager to see if the Fed chair Yellen will offer any hint of the next rate hike. It is worth nothing yet again that the pair is largely at the mercy of US Fed rate hike bets. Kuroda may say rates could be cut further however the question is not whether rates could drop further but whether further rate cuts would be well received by the markets. If the move to negative rates on Jan 29 ended up strengthening Yen, the likelihood of a similar reaction to further rate cuts is high.

Yellen will have the opportunity to clarify the outlook for rates when she speaks at the Symposium on Wednesday. Her comments would pretty much set the tone for the next leg in USD/JPY.  Neutral stance is as good as dovish tilt and this could result in extension of the slide in USD/JPY, while a hint at a rate cut could trigger sharp unwinding of shorts and this could yield a move to 105.00 over the next couple of weeks.

Technicals – P&F double bottom breakout

The double bottom breakdown on the Point & Figure chart (3 box reversal point and figure chart suggests the spot could be heading lower to 96.80 (monthly 100-MA) and 94.78 (61.8% of 2011 low – 2015 high).

• Monthly RSI has turned bearish, while the daily RSI is yet to hit the oversold territory. Thus, corrective moves on the back of oversold daily indicators could be met with fresh offers.
• On the larger scheme of things, bearish invalidation is seen only in case the spot closes the day above 104.19 (23.6% of 121.69-98.787).

AUD/USD Forecast: Bearish rising wedge breakout

Daily Chart

• Aussie’s multiple failure to see a bullish break from rising wedge pattern earlier this month, followed by a bearish break on Friday suggests the spot is heading to a trend line support around 0.7514 (trend line drawn from June 24 low – July 27 low).
• Such a move would also push the daily RSI below 50.00.
• On the higher side, only day end close above 0.7643 (161.8% of Jan 2016 low – Feb 4, 2016 high – Feb 9, 2016 low) would signal bearish invalidation.

NZD/USD Forecast: Needs to breach rising trend line

Daily Chart

• Rising trend line drawn from July 25 low and Aug 8 low comes around 0.7215 levels.
• Kiwi is similar to Aussie in a sense that it has suffered multiple failures around 0.73 hurdle, however, a bearish break below rising trend line is yet to happen.
• If it does, support at 0.7171 (23.6% of 0.6675-0.7325) stands exposed, under which losses could be extended to 0.7087 (Aug 8 low).
• On the higher side, only day end close above 0.7339 (Aug 11 high) would signal bearish invalidation.