USD/JPY Forecast: Lower highs, spinning top suggests correction

Dollar-Yen pair clocked a high of 104.20 before ending the day on a weaker note at 103.82 levels. The daily low was 103.52, thus resulting in a bearish spinning top candle stick formation on the daily chart. The currency pair was rejected at 104.00 levels in early Asia today and was last seen trading around 103.86 levels.

Japanese data disappoints

Japan completed a year of dismal exports after September data showed exports dropped 6.9% y/y. Imports fell 16.3% during the same period, resulting in a trade surplus of 498.3 billion yen ($4.8 billion). Exports to China, Japan’s largest trading partner, dropped 10.6%. Falling exports to China in the wake of a weaker Yuan is bad news given the Bank of Japan (BOJ)/Japanese government then faces increased pressure to weaken Yen. However, both the entities stand exhausted, thus hoping the Fed would raise rates resulting in Yen weakness. Fed-led weakness in Yen won’t address the problem of falling exports to China, given the Yuan could slide more than Yen in response to Fed hike.

Focus on Fed speak

Today’s economic calendar is dominated by Fed speak – Dudley, Bullard, Evans and Powell. December rate hike probability is currently seen just short of 70%. Despite a possible hawkish talk from all for policymakers, the rate hike bets may not rise further as we still have election risk looming larger.  On the other hand, surprisingly dovish sound bites could help Yen gain more ground.

Technicals – Selling likely below 103.70

Daily chart

• The falling tops formation on the daily chart coupled with repeated failure to hold above 104.32 (September highs) and an upcoming bearish MACD crossover suggests the spot could breach key support of 103.70 (weekly pivot R1) and drop to 102.99 (100-DMA) and 102.76 (weekly 10-MA).
• Friday’s bearishspinning top candlestick also adds credence to the possibility of a corrective move.
• Only a daily close above 104.32 would suggest extension of rally from 100.00 levels.

AUD/USD – Gravestone Doji at falling trend line resistance

Weekly chart

• Last week’s decline from the high of 0.7734 to a low of 0.7587 and Friday’s closing of 0.7605 led to a gravestone Doji formation on the weekly chart. The candlestick pattern is usually a reveral signal and the fact that it has appeared at crucial falling trend line level forces us to consider the possibility of the pair having topped out at 0.7734 level.
• Falling trend line drawn from Apr 2013 and Aug 2014 high comes around 0.7610 levels, where the spot is currently trading.
• Also note, we have bearish outside day candle (Thursday) on daily chart. Hence, rise towards 0.734 should not be trusted given the bearish formation on the daily chart.
• Downside towards 100-DMA seen today at 0.7559 and to 0.7488 (monthly classic pivot support) stands exposed unless we see a daily close above the recent high of 0.7734.