YEN saw safe haven premium unwind

USDJPY, H1 and H4

USDJPY found its feet after stocks rebounded in China and Asia, which was seen after the Yuan lifted from lows amid reported purchases by major state banks, apparently in a Beijing-directed move to smooth USDCNY’s assent after the PBoC set a higher reference rate for a 7th consecutive day.

The Yen had been firming after the Yuan hit 1-year lows, which had rattled stock markets in Asia. The sharp drop in global equity markets seen after China’s sudden 2% devaluation of the Yuan in August 2015 has been at the forefront of investors minds lately, so the apparent intervention to cap Yuan losses mollified, at least up to a point, prevailing concerns about competitive devaluation and ratcheting-up trade tensions with the US (and risks for capital outflows from China). This fuelled the MSCI the recovery in the Asia-Pacific equity index (ex-Japan) to a net gain of 0.55%, having shown a 0.4% loss at the intraday lows. In data, Japan’s June core CPI lifted to a rate of 0.8% y/y, up from 0.7% y/y in May, as expected and still far short of the central bank’s 2% target. The data chimes with a recent report saying that the BoJ will likely cut its long-term inflation projections.

Currently, USDJPY concomitantly recouped to the mid 112.0s after printing a low of 112.20 while AUDJPY, a relatively high-beta cross which is sensitive to China sentiment, has lifted by nearly 1% from its lows. The pair formed in both 1-hour and 4-hour chart a tweezer bottom formation, which is a bullish candlestick pattern. Despite the upside movement the last 3 hours, it is till trading below the PP level at 112.55 but more precisely below the 20-period MA in the hourly chart. This along with the last doji hourly candle, suggest that short term positive momentum is running out of steam.

The technical indicators in the 1-hour chart remained negatively bias despite the latest swing higher. RSI remains below neutral zone while MACD decreased slightly below signal line but it is still moving within the negative area, without any strong sign of a potential turn from negative to positive momentum. Support levels come at the 200-period EMA, at 112.20, and at the S1 from the pivot point analysis, at 111.93.

To the upside only a break above the 112.55-112.60 (between PP level and 50-period EMA) could retest the 112.72-112.90 area, which is set between the  61.8% Fibonacci retracement (set since yesterday’s peak) an the latest up fractal.