USD/JPY Forecast: Mrs. Watanabe no longer contrarian?

USD/JPY Forecast: Mrs. Watanabe no longer contrarian?

For last seven days the USD/JPY pair finds itself largely stuck in the range of 100.71 (50% of 2011 low – 2015 high) and 100.00 (psychological level). The rally in USD ran out of steam a high of 125.856 in June 2015 post which the spot witnessed a steady decline towards 100.00 levels. Yen demand spiked on June 24 (Brexit day) pushing the pair to a low of 98.787 before speculation of aggressive BOJ/Jap government stimulus saw a brief recovery to 107.00 levels. However, disappointment once again resulted in a drop to 100.00 on Aug 16^th.

Over the last few months, Mrs. Watanabe (nickname for Japanese retail investors) has had a tough time making its presence felt. Known for contrarian trading, Mrs. Watanabe has failed to lift the pair from the psychological level of 100.00.

Going long USD around 100.00 seems the perfect trade for contrarian trader like Mrs. Watanabe, given the broader market sentiment is heavily in favor of the Japanese Yen. May be Mrs. Watanabe has  realized that only the Fed rate hike talk could lift the pair, however, such a move is unlikely in the near future.

An article in Nikkei Asian review states, “Net long-dollar positions against the yen totaled 287,000 contracts as of Friday, according to over-the-counter trade data compiled by QUICK. The figure was the highest in about two months, but far below the 450,000 contracts marked in the second week of January, when the Japanese currency spiked amid fears of a global economic slowdown.”

The only situation in which Mrs. Watanabe could make a comeback with her contrarian trades is if and when Fed officials start talking up rate hike bets aggressively. As of now, markets believe Yellen will refrain from making a statement supporting a rate increase on Friday. This coupled with a (possible) weak August non-farm payrolls figure could result in a quick fire drop to 96.00 levels.

Technicals – Wait for the range breakout  

Daily chart

• Technical charts hardly indicate anything given the spot has been restricted to a largely narrow range of 100.71 to 100.00 since last Thursday.
• Though we have had a bearish break on Point and Figure chart, it is still advisable to wait for a breakout.
• An upside break could yield a re-test of 101.40-101.50 levels, while a bearish break from the range would shift risk in favor of a drop to 99.00 handle.

AUD/USD Forecast: Resilient to gold and oil price weakness

Daily chart

• Dips below 0.7597 (23.6% of 0.6827-0.7835) are being repeatedly bought into, despite sell-off in oil prices and weakness in gold. The pair finds itself stuck between trend line hurdle (rising trend line drawn from May 30 low and June 24 low) and 0.7597 this week.
• Pair’s repeated failure to hold below 0.7597 in first three trading days of the week could be followed by a spike to trend line resistance seen around 0.7672 (23.6% of 0.7835-0.7145).
• On the lower side, only a day end close below 0.7560 (trend line from May 30 low and July 27 low) would signal trend reversal.

NZD/USD Forecast: Expanding channel, Bullish break on charts

Daily chart

• Over the last two months, we have seen NZD/USD clock multiple intraday highs above 0.73 handle. However, not once did we see the bird post a day end closing above 0.73.
• This has finally happened on Wednesday as the kiwi closed at 0.7308. That marks a major bullish break on day end closing basis. Hence, odds of the pair extending its gains today to 0.7396-0.74 (daily expanding channel hurdle) are high.
• On the lower side, only a day end close below 0.7250 levels (confluence of rising trend line & upper end of the rising channel).