AUD/JPY Bearish Trend Continues

AUD/JPY Technical Analysis

  • Shoulder Head Shoulder formation
  • The price is bearish
  • The entry is at the right shoulder
  • D L3 possible target

H1 Chart AUD/JPY

  1. Left shoulder
  2. Head
  3. Right shoulder
  4. Target

The AUD/JPY has made a shoulder head shoulder formation. We might see an extended move down as a part of the overall bearish move. Trend is still bearish and we can see rejections from 90.00 levels as my entry level is just there. Target is D L3 88.54 but pay close attention if price breaks 88.30. The break of 88.30 should accelerate the move.

For a look at all of today’s economic events, check out our economic calendar.

Cheers and safe trading,

Nenad

Does Tech Provide the Lifeline? China Credit Impulse? Oil Sanctions?

Global Macro and Stock Markets Analysis

US stocks finished higher in choppy trading, buoyed by a tech-name rally as 10-year yields slumped, which provided a relief conduit for growth stocks. Indeed, the tilt to the tape favoured growth over value as UST 10y yields fell.

The FOMC meeting scheduled for May 4 is expected to display a hawkish Fed that remains steadfast in bringing inflation back down to its 2% target; it is debatable how long of a reprieve growth stock will get.

The drawdown in China/Hong Kong continued triggered by ongoing economic weakness in Mainland. It turned contagious, with Covid concerns escalating to fears of a Beijing lockdown that spurred broader de-grossing globally, fueling concerns of global growth slowdown and for further supply-chain snarls to only exacerbate already rampant inflation.

But we have been down this bumpy Covid road many times before, and it is improbable that mainland powers do not have a flood-like policy contingency plan when lockdowns are removed.

In China, the credit impulse has been a good leading indicator of the PMIs. Once again, the PMIs are significantly weaker than implied by the credit impulse. If history is any guide, the PMIs may have a further downside as lockdown will extend through Golden Week but should recover sharply once restrictions are eased.

And while China property could shift out of the short seller’s gaze when lockdowns are eased, the steady drumbeat of online regulation catching up to innovation will continue to be painful.

Oil Fundamental Analysis

Crude prices are down at the start of the week due to concerns around Covid-19 outbreaks in China, leading to a more protracted lockdown. While a quick return of Libyan production also fueled the bears. Libya’s Oil Ministry said that the closed fields, shutting in >500kb/d of production, could reopen within days.

Given Omicron’s less-lethal footprint, traders had expected some easing of lockdowns before the Golden Week. And with this unlikely to happen, traders were then forced to revalue oil prices lower on a more protracted consumption slump than expected. China’s economy was quite normal last year. So, we are set to see abysmal consumption data post the Golden Week.

Still, reports are rampant that the EU will have some form of the Russian oil embargo in its sixth sanctions, according to EU Commission Executive Vice President Valdis Dombrovskis. While the details have yet to be agreed upon, the sanctions could be a gradual phasing-out of Russian oil or tariffs on exports beyond a sure price cap. And this continues to support the downside.

In addition, Macron has been vocal in calling for an escalation of sanctions against Russia, including a ban on oil and coal imports. On the back of a Macron election win, these calls should grow louder despite German reluctance.

Energy inflation hedges continue to dwindle with the CFTC data released on Friday showing that money managers cut their net long US crude futures and options positions by 15,963 contracts to 246,481 on April 19. Cleaner positioning is suitable for oil bulls as it can elevate downside risks

FOREX Fundamental Analysis

Japanese Yen and the BoJ Meeting

The US yields moved lower overnight, undoing much of last week’s move, on risk aversion related to China’s inability to contain covid cases (more lockdowns) and how this will impact global growth. Cross JPY selling was the main driver, with AUDJPY and EURJPY, in particular, getting hit. USDJPY topped out in the early Asian session near 128.80/90 before falling to a low of 127.89.

USDJPY opens today’s Asia session near 128.00/10, and support in USDJPY rests at 127.80/90 (overnight low) and 127.30/40 (200-hour MA). Buying dips remains the preferred way to play the pair despite the recent price action. It is unlikely the Bank of Japan changes tack at its meeting later this and, given next week is Golden Week in Japan, local USD buyers will need to get their USDs in before heading on holiday.

Even after Kuroda seemed to dismiss any chance of intervention with his remarks on Friday evening, the market remains wary of a downside. BOJ options climb steadily as the market adds a risk premium for the upcoming policy meeting. The USDJPY curve is now pricing an 80bp gap move. The market will be looking for any changes to policy rate forward guidance and inflation outlook adjustment in the medium to long term

PBOC Cuts Forex RRR Rate By 1%

The PBoC has cut the Forex RRR rate by 1% to 8%. This is the rate that governs firms foreign exchange reserve requirements, and the last move saw them hike it by 2% to 9% back in December 2021.

I think the PBOC FX RRR rate cut is a reaction o the increased volatility and the pace of the weakness. And I suspect the PBOC is still okay with a weaker CNH/CNY, but the FX RRR cut could put a lid on USDCNH speculative topside fervor for now, and we could trade within current levels for a bit.

Malaysian Ringgit

And easing of topside USDCNH momentum due to the PBoC RRR FX cut and a softening of US 10 y UST yields should offer the beleaguered MYR some relief today. By no means do I suggest donning the rally caps just yet, as we have a pregnant hawkish FOMC meeting lying in wait for any USD bears on the first week of May

Thai Baht

USDTHB spot is now trading at 33.10, near the highest level since mid-2017. The consensus view is that this is a combination of general risk-off sentiment, yield differentials, and glum China covid lockdown outlook (and the associated impact of the Tourism sector) weighing on THB. Hard to disagree.

But there were also $425 mn of dividend outflows last week. THB is most sensitive to periods when dividend flows are more considerable than $350 mn. Thailand companies will pay around $1.5 bn of dividends to non-residents in April-May this year. (That’s in the price now) I think THB longs as a tourism recovery play are getting close and would look to cross it with local low yielder TWD as opposed to typical funders like JPY or EUR a

Turnaround Tuesday

During periods of market fear, there is a typical inter-week pattern that stock markets often follow. Markets do not always follow this pattern, but they do follow it a surprising proportion of the time.

The most reliable part of this pattern is “Turnaround Tuesday.” Indeed, stocks tend to rip higher on Tuesday if they sold off the Thursday, Friday, and Monday before. It is a simple human pattern because when the news appears bad, traders get nervous into the weekend and sell some of their holdings on Friday. Then they read all kinds of adverse media reports about China’s lockdown, which scares them to sell more on Monday.

Investor selling pulls in momentum traders who go short on Monday and adds to the selling pressure. The shorts get squeezed into the Monday close, which triggers Turnaround Tuesday. Then, Tuesday comes, and there is nobody left to sell so short covering set in, and stocks go up.

For a look at all of today’s economic events, check out our economic calendar.

Why Is the Yen So Weak?

By Han Tan Chief Market Analyst at Exinity Group

Last Tuesday, USDJPY posted its biggest single-day climb since November 2020, only to then take a breather for the time being.

(Note: weaker Yen versus the US dollar = USDJPY climbs higher).

USD/JPY Daily chart

The last time USDJPY traded at these levels just below 130, Eminem had just released his hit 2002 track, “Without Me”.

In fact, JPY is the worst performer against the US dollar amongst all G10 currencies … by far.

And the Yen’s woes aren’t just limited to its performance against the US dollar alone.

Consider how the JPY Index has weakened by almost 9% so far this year.

JPY Index daily chart

This index comprises a basket of currency pairs measuring the Yen against its G10 peers, all in equal weights:

NZDJPY
GBPJPY
CHFJPY
EURJPY
AUDJPY
USDJPY

The Yen also has a year-to-date decline against all its major Asian counterparts as well.

So why is the Yen so weak?

The main reason is because of monetary policy divergence.

Let’s break it down.

Firstly, monetary policy is the way a central bank achieves its goals for the economy (e.g. maximum employment, stable prices, etc.), using tools like interest rates, money supply, and even currency levels.

And where’s the divergence?

The Bank of Japan is still using its monetary policy to support its economy.

This is in stark contrast to what most other central banks around the world are doing = pulling back that support. They do this by raising interest rates/easing back on bond purchases.

The goal of such policy-tightening (not what the BOJ is doing) is to reduce money supply and demand levels in an economy = less money chasing after scarce goods = to lower consumer prices/inflation.

Monetary policy: Comfort food vs. a regular diet

Consider when a child is feeling down, his/her parents may have no qualms treating the child to some ice cream, candy, or chocolate bars.

Such sweet indulgences are meant to make the child feel better in a jiffy, but is (hopefully) just a short-term fix and also (again, hopefully) far different from the regular diet the child consumes as part of the daily routine.

Similarly, when the economy was suffering during the pandemic, central banks rolled out record-low interest rates and printed money out of thin air to keep financial markets supported.

Low interest rates = cheaper for households/businesses to borrow money = they have money to spend in the economy = the economy gets better

But now that economies are recovering and even posting red-hot inflation numbers, it no longer needs record-low interest rates and unlimited bond purchases

Hence, central banks are returning to their economy’s “regular diet” by tightening policy = paring down bond purchases/reducing the supply of money in the economy/raising interest rates.

Who’s already hiking rates?

Within the G10 space alone:

  • Bank of New Zealand – raised its benchmark rate by 125 basis points (1.25%) since Q3 2021
  • Bank of Canada – raised its benchmark rate by 75 basis points so far this year
  • Bank of England – raised its benchmark rate by 65 basis points since December
  • US Federal Reserve – raised rates by 25 basis points in March, perhaps another 50-basis point hike in May

But not so the Bank of Japan.

It’s keeping Japan’s benchmark interest rate at a record low of negative 0.1%, while buying up even more bonds.

Hence, the divergence in monetary policy.

How is policy divergence playing out in markets?

This divergence is evident in the widening gap in yields between Japanese bonds and its global counterparts.

Firstly, what are yields?

Yields are a way to measure how much money you could earn on an investment over a set period of time.

In the case for bonds, it’s calculated in terms of how much interest one would get paid if they held on to that bond till it matures/reaches the end of its tenure.

For context, bond yields have been climbing around the world.

This is because investors are selling off bonds in tandem with central banks that are reducing their balance sheets.

And when bond prices drop, their yields rise.

Here are the benchmark 10-year yields for these other countries (at the time of writing):

US = 2.88%
Canada = 2.87%
China = 2.82%
UK = 1.95%
Germany = 0.89%

Contrast the numbers above with Japan’s 10-year yields, which are capped at 0.25%.

As a policy, the Bank of Japan is buying even more bonds to keep bond prices elevated and limit its benchmark 10-year yields to no higher than 0.25% (this process is also known as “yield curve control”).

The goal for capping those yields is to keep borrowing costs low in Japan so that households/businesses can still borrow to stimulate the economy.

Government bond yields are often used as the benchmark by which other banks/financial institutions calculate the interest to charge the customers who borrow money.

Here are two charts that show how the widening gap/spread between US benchmark yields vs. Japan’s benchmark yields (10-year government bonds) correspond with the USDJPY’s performance:

US vs JPY yields spread and USD/JPY

See how those two lines are moving in sync with one another?

In essence, the wider the gap between US and Japan’s yields, the higher USDJPY goes (the weaker the Japanese Yen against the US dollar).

How are Japan’s capped yields affecting the yen?

The lower yields on offer in Japan suggests that investors would get more bang for their buck by buying bonds in other countries that are now posting higher yields (again, yields in this case are a measure of how much one could earn from investing in that particular bond).

At risk of oversimplifying matters:

Less demand for Japanese assets = less demand for the Japanese yen.

And when there’s lower demand = prices fall (all else equal).

Hence, the Yen has been falling as investors shun Japanese bonds.

From a fundamental perspective, markets are getting the sense that the Japanese economy is still too fragile – or at least the Bank of Japan thinks so of its own economy – and is nowhere near strong enough to be able to do without the ‘comfort food’ from the central bank.

But of course all that could change, as the BOJ faces increasing pressure to follow suit with other central banks in tightening policy … or perhaps even just to stem the Yen’s weakness.

Which brings us to the final question to ponder upon for this article …

Will the Yen eventually rebound?

As a market cliche goes … nothing lasts forever.

So yes, theoretically the Yen could eventually rebound.

But one of two things may need to happen first:

1) The Bank of Japan has to signal that its willing to abandon its ultra-loose monetary policies.

Policymakers need to be convicted that Japan’s economic recovery is sustainable, and that inflation is being fuelled by robust demand (a.k.a. demand-pull inflation) as opposed to cost-push inflation.

To be clear, this seems unlikely for a while more, at least through the end of 2022.

Still, look out for the Bank of Japan policy meeting next week (April 28th).

The slightest clue that the BOJ is ready to tweak its policy stance could trigger a big move in the Yen.

2) Policymakers intervene to curb Yen weakness

This has been done before, but not for quite some time.

The last time the Japanse government propped up the yen was back in 1998, when USDJPY traded above 140 and peaked at 147.66 in September 1998.

However, back in 2002 even when USDJPY surpassed 135, the government sat on its hands and didn’t intervene.

So it remains to be seen at what level Japanese policymakers will tolerate before trying to stop the Yen from weakening further.

Keep in mind that a drastically-weaker Yen causes its own problems for the economy.

Japan is a net importer of energy, which are widely denominated in US dollars. The weaker Yen forces Japan to spend more of its currency to buy the same amount of fuel, not to mention the other imported goods (e.g. food) and services that it now has to spend more money on. If the imported costs become too great and weigh on businesses/households, then the Japanese government may be forced to pay for subsidies to ease the pain.

That’s money out of the Japanese government’s pocket that could be spent on other things.

So until either of the above scenarios happen, shorting the Yen has remained a popular bet.

Last week, asset managers raised their short bets on the Yen to the most ever on record, according to CFTC data.

Overall, as long as this policy and yields divergence continues to play out between Japan and other major economies, that’s likely to keep the Yen on its weakening path for longer.

That is, unless the BOJ or Japan’s Finance Ministry switches tact and, in intervening to halt the Yen’s weakness, might do so while singing lines from Eminem’s monster hit from 2002 …

“Now this looks like a job for me
So everybody, just follow me
‘Cause we need a little, controversy
‘Cause it feels so empty, without me”

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

AUD/JPY The Scope for the Next Target is Open

AUD/JPY Technical Analysis

  • Uptrend continues
  • Good R:R
  • M H3 is the next target
  • 93.42 needs to break
  • Buying on the dips

Daily Chart AUD/JPY

  1. Low
  2. Double top
  3. Higher low
  4. Entry zone
  5. Target

The AUD/JPY is having an uptrend. A move straight off the zone should be lasting for at least intra-week. I have 2 entries 93.00 and 93.40 targeting 94.13 and possibly 95.33. Watch for the breakout and the move further up. Equities might follow up, namely the SNP500.

For a look at all of today’s economic events, check out our economic calendar.

Cheers and safe trading,

Nenad

 

Can Tracking Global Money Flow Provide Clues To Stay In The Black?

At Technical Traders, we track a variety of markets, asset classes, and global money flow looking for clues that will help us in our quest for ETF returns. Interestingly when foreign exchange is charted as a benchmark to the SPY (S&P 500), we can see that FX has also been in a risk-on environment for the past 2-years.

Recently we looked at volatility utilizing the CBOE Volatility Index known as VIX. But there are alternative ways or tools that we can use to analyze asset prices.

Global Money Flow Has Been Risk-on

As seen in energy, metals, food commodities, and real estate, the recent surge in inflation has also been taking place in foreign exchange. Commodity currencies typically refer to the Australian, New Zealand, and Canadian dollar. To a certain extent, the U.S. dollar as well due to its global ranking as one of the top producers of worldwide oil and gas.

Typically, a currency like the Australian dollar will experience global money in-flows in a risk-on environment. Whereas in a risk-off environment, the opposite occurs as money flows out of currencies like the Australian dollar and back into what are considered safe-haven currencies like the Swiss franc, Japanese yen, and the U.S. dollar.

Recently money has been re-allocating to different assets as global investors seek returns. The FX markets have also benefited from capital in-flows. Looking at the last 2-years, beginning from the Covid lows put in on March 2020, we see the SPY went from a -30% loss to early January, where the SPY touched +50%.

Interestingly, the AUDJPY (Australian dollar vs. Japanese yen) went from -15% to more than +20% or a total change of 35% during the same timeframe. But how do we utilize this information to determine where we are in the current market cycle? Let’s walk through this process together to see what clues the FX market may have to guide our ETF selection and trading.

AUD/JPY VS SPY – Daily Chart

Global Money Flow
TheTechnicalTraders – TradingView

GBP/JPY Reacts to 6-year Upper Channel Resistance

Based on the historical analysis, the GBPJPY (British pound vs. Japanese yen) tends to track the SPY, and therefore we will do a quick breakdown of the GBPJPY.

Immediately we can see on the following monthly chart that the GBPJPY reacts nicely to its 72-month or 6-year upper and lower channel. In 2011 the GBPJPY made a low and turned up at its 6-year lower channel.

During the 2015 to 2016 time frame, the GBPJPY then put in a head and shoulders top formation over a 12-month period at the 6-year upper channel. It’s important to note that the head of the top was at 166.6% of the GBPJPY all-time low in the GBPJPY, and the shoulders were made at the Fibonacci 161.8% of the GBPJPY all-time low.

The 2016 drop was 17-months down, and the 2017 reaction back up was 17-months up. The 2019-20 drop was 26-months down, and to date, the 2020-21 move back up has just completed 26-months up. Note: indicator includes or counts both the low-month and the high-month in its counts. The main point here is that the GBPJPY, in its recent past, has been mirroring its previous price wave.

Both 2016 and 2017 lows were made at 50% of the GBPJPY all-time high. But the 2020 low also turned at the 6-year lower channel.

Now we find the GBPJPY currently reacting to its 6-year upper channel after booking a 26-bar (month) rally.

It is important to note that this article is written to give us insights into some alternative research to challenge us to find clues in price. Time will provide confirmation of this research or not, but if the price continues to react at these levels, we may need to consider that market psychology or trend may be beginning to shift.

GBP/JPY – British Pound Vs Japanese Yen – Monthly Chart

Global Money Flow
TheTechnicalTraders, GBP/JPY – Daily Chart

Learn How to Use Price to Determine Trend

As technical traders, we follow price only, and when a new trend has been confirmed, we will change our positions accordingly. We provide our ETF trades to our subscribers. Somewhat surprisingly, we entered five new trades last week, four of which have now hit their first profit target levels and two of which have now been closed at a profit.

Our models continually track price action in a multitude of markets, asset classes, and global money flow. As our models generate new information about trends or a change in trends, we will communicate these signals expeditiously to our subscribers and to those on our trading newsletter email list.

Sign up for my free trading newsletter so you don’t miss the next opportunity!

Being successful at trading is more than knowing when to buy or sell. Money and risk management play a critical role in becoming a consistently profitable trader. Correct position sizing along with the utilization of stop-loss orders can help preserve your valuable investment capital. Taking profits in stages by scaling out of positions and when appropriate moving stop-loss orders to breakeven can further boost your trading performance with the benefit of reducing your portfolio risk.

What Strategies Can Help You Navigate the Current Market Trends?

Learn how we use specific tools to help us understand price cycles, set-ups, and price target levels in various sectors to identify strategic entry and exit points for trades. Over the next 12 to 24+ months, we expect very large price swings in the US stock market and other asset classes across the globe.

We believe the markets have begun to transition away from the continued central bank support rally phase and have started a revaluation phase as global traders attempt to identify the next big trends. Precious Metals will likely start to act as a proper hedge as caution and concern begin to drive traders/investors into Metals and other safe-havens.

We invite you to join our group of active traders and investors to learn and profit from our three ETF Technical Trading Strategies. We can help you protect and grow your wealth in any type of market condition by clicking on the following link: www.TheTechnicalTraders.com

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Chief Market Strategist
Founder of TheTechnicalTraders.com

AUD/JPY Strong Uptrend Continues Above 87.00

AUD/JPY Technical Analysis

  • The break above W H4 is possible
  • W H5 is the target
  • W H3 is interim support

H4 Chart EUR/USD

  1. Swing 1
  2. Swing 2
  3. Swing 3
  4. Start of breakout
  5. Target

The AUD/JPY is bullish. Positive tones are surrounding the Ukraine-Russia crisis right now and we see the risk-on scenario. Markets are bullish and equities are going up. The AUD/JPY is bullish and we should see a continuation of bullish trend above 87.00 The final target is 87.63. Buying the dips continues.

For a look at all of today’s economic events, check out our economic calendar.

Cheers and safe trading,

Nenad

 

USD/JPY and AUD/JPY Eye Higher: Elliot Wave Analysis

However, blocking Russia from SWIFT was already been in talks back in 2014 but SWIFT private company rejected the sanction. If would be the same this time, and if there are some positive news from Russia-Ukraine negotiators, then this may help markets to stabilize a bit. From an Elliott Wave perspective, we see strong resistance on gold and crude, which could be positive for stocks and possibly even USDJPY.

USDJPY Elliott Wave Analysis

USDJPY is trading sideways for the last few weeks which now looks more and more like a bullish triangle, so we should be aware of more upside after final wave E). A Break above 115.85 can lead to a later breakout into the fifth wave, while the price is above 114.34 invalidation level.

Chart, line chart

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AUDJPY Elliott Wave Analysis

AUDJPY is still in sideways consolidation after we noticed final wave E of a bullish triangle pattern, but keep in mind that we can see another small triangle within that wave E so sooner or later we can expect a break out to the upside, we just need a bullish confirmation which is above 84.20 level.

Graphical user interface, chart, line chart

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For a look at all of today’s economic events, check out our economic calendar.

Technical Outlook: Yen Crosses Under The Spotlight

The weakness could be based on a jump in risk sentiment amid strong corporate earnings. However, geopolitical tensions and inflation worries could still accelerate the flight to safety, rekindling appetite for safe-haven assets like the Yen.

Focusing on the technicals, February could be a volatile month for the Yen if conflicting themes influence global risk sentiment. Looking at the USDJPY, prices remain firmly bullish on the monthly timeframe as there have been consistently higher highs and higher lows. Bulls remain in a position of power but need to conquer 116.30 to open the doors to further upside.

USD/JPY Monthly chart

The story changes on the weekly charts. Prices remain in a wide range with support around 113.360 and resistance at 115.50. A solid weekly close above this resistance could trigger an incline towards 116.30 and 117.40.  Alternatively, a rejection from 115.50 could inspire a selloff towards 114.50, 114.00, and 113.360.

USD/JPY Weekly chart

Some momentum is building on the daily charts with bulls in a position of power. A strong daily close above 115.50 could trigger a move towards 116.00 and 116.30.

USD/JPY Daily chart

EUR/JPY bulls in the building

The aggressive rally last Thursday may have set the tone for the EURJPY this month.

A hawkish ECB tipped the balance between the EUR and JPY with bulls going out of control. Prices are trading around the 132.00 level of writing with further upside certainly on the cards. A strong daily close above 131.70 could encourage a move towards 132.60 and 133.47. Technical indicators such as the Simple Moving Average and MACD agree with the bullish outlook. Should 131.70 prove to be unreliable support, a decline back towards 131.00 and 130.20 could become reality.

EUR/JPY Daily chart

GBP/JPY journeys north after bounce on MAs

The GBPJPY remains in a healthy bullish trend on the daily charts after bouncing from the 50,100 and 200 Simple Moving Averages. A weaker Yen may inject GBPJPY bulls with enough confidence to challenge the 157.50 resistance level. Should prices secure a daily close above this point, the next key point of interest will be found around 158.19. Alternatively, if 157.50 proves to be a tough nut to crack, prices are likely to decline back towards the 155.50 support.

GBP/JPY Daily chart

AUD/JPY presses against 82.50

A major breakout could be on the horizon for the AUDJPY. Prices are trading just below the 82.50 level which is where the 50, 100, and 200 Simple Moving Average reside. A solid breakout and daily close above this point could open a path towards 84.00. Should 82.50 prove to be reliable resistance, prices may decline back towards 80.50.

AUD/JPY Daily chart

By Lukman Otunuga Senior Research Analyst

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

S&P 500 Has Touched the Important Zone

S&P500 Technical Analysis

  • S&P500 is bullish
  • The price might reject off 88.6
  • The market is at important level
  • It will bounce or reject

DAILY CHART S&P500

  1. Pinbar high
  2. Swing low
  3. The entry zone
  4. Target High
  5. Target Low

The price is currently bouncing from the zone. We could see a continuation up or a move down depending on the daily close. The price is at the crossroads 4690-4715 is the trading zone. A bounce off the zone should be going towards 4892 while the drop might aim towards 4486. Watch the daily close and all levels in between. The SP500 also correlates very strongly to AUDJPY so watch also the movement on the AUDJPY pair. Equities generally highly correlate to JPY which is the risk on and risk off gauge. The daily close on the SP500 is important. Above or below the trading zone for the next direction.

For a look at all of today’s economic events, check out our economic calendar.

Cheers and safe trading,

Nenad

 

AUD/JPY Is Bearish, Watch For Yen Strength

AUD/JPY Technical Analysis

  • AUD/JPY is bearish
  • Clear rejection below M L3
  • Q H3 should be the target
  • Connected to equities

  1. Resistance level pinbar
  2. Low
  3. High
  4. Bearish rejection

The price is bearish. When its risk-on environment, Commodities prices tend to increase, and traders go long AUD due to that factor. When commodities prices go up, Stock Markets go up and there is demand for positive swaps on AUD pairs currently as opposed to JPY. When its a risk-off environment, usually the opposite occurs, and as a result, the JPY appreciates as foreign flows from Japan are repatriated back to their local currency. At this point we can see that the market is rejecting. 83.70 is the zone for short trades. Targets are 82.38 and 82.24.

For a look at all of today’s economic events, check out our economic calendar.

Cheers and safe trading,

Nenad

 

Japanese Yen Currency Pairs Elliott Wave Analysis – Looking Higher

As per Elliott Wave analysis, AUDJPY made a deep pullback in the last few months from 86.00 area, but this can be a contra-trend move if we consider that market came down with overlapping price action after previously completed five waves up. Such pullbacks are normal. What is very interesting now, is a bounce away from 78.44 support and current rise back to the upper side of a channel where breakout is expected to cause more bullish price action as higher degree wave B) can be finished.

AUDJPY Daily Elliott Wave Analysis Chart

Graphical user interface

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CADJPY came down to 85.30 support, back to the former wave four from where we can already see some bullish price action. In fact price is trying to break out of a downward corrective channel that can bring more gains ahead, especially if we consider that drop from 91.00 area is having a corrective look, thus it can be wave B so ideally higher degree wave C is in play.

CADJPY Daily Elliott Wave Analysis Chart

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Red Everywhere, Watch AUD/JPY for As a Guide

The known challenges to the markets, namely the spread of the Delta variant, rising inflation, and the Fed policy outlook have suddenly exploded into life. It’s all in timing some might say, which is especially true in trading.

The single Covid case in New Zealand set off alarm bells everywhere, with the Ardern government swiftly ordering a national lockdown due to its “zero Covid” strategy. Going hard and early instead of light and long has proven to have far less of an enduring economic impact. But the RBNZ was forced to delay its planned route to policy normalisation, even if it did surprise more hawkishly on its future rate projections.

Fed set to reduce the punchbowl

With global growth forecasts being re-rated on disappointing China data amid rising Delta variant cases, we’ve also heard from Fed officials who are now ready to taper before the end of this year. Sufficient progress has been made towards the inflation target and progress is being seen towards the FOMC’s employment goal.

Remember that the bumper July payrolls came after the Fed minutes, so a solid August report is probably good enough to announce a tapering framework potentially at the September meeting. With consensus veering towards a faster taper too, an end date around the middle of next year could be on the cards, paving the way for a rate rise by the end of 2022. This has certainly given the equity bulls some jitters, even if bond market consensus was spot on. Of course, increased volatility and Delta variant concerns may be a factor going forward.

Aussie’s perfect storm

Risk-taking is on the back burner for now, which means high beta commodity currencies like the Aussie are in a world of pain. The worst performing major this month, collapsing commodities, and plunging iron ore prices need to be added to the list of drivers hurting AUD. Similarly, the global bellwether copper has fallen every day this week until today and is now touching the 200-day moving average. This has pushed the RBA far down the list of major hawkish central banks, highlighted by their recent minutes which hinted at a much more dovish debate under the surface.

AUD/JPY global risk gauge

This currency pair is viewed as the best risk barometer and a metric for measuring broader sentiment is AUD/JPY, even if the historic positive correlation with US equity markets has decoupled since mid-June. The woes of the Aussie are well known, while the yen has also been getting a decent tailwind from falling US Treasury bond yields. The pair is making new year-to-date lows again today after slipping below the July low at 79.84 and the January low at 79.20. Next support comes in around 78 and the 38.2 Fib retracement level.

We are on for seven days of losses now and prices are oversold on the daily RSI and have scythed through the lower Keltner band. This warns of a pullback, though buyers will need to get back above 80 to slow the strong bearish momentum.

Written on 20/08/2021 by Lukman Otunuga, Senior Research Analyst at FXTM

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AUD/JPY Has Established a Strong Support

79.90-80.60 is the zone where we should be seeing a bounce. Q L5 pivot also protects the bulls. Bullish bounce towards 81.70 is very possible. A close above it will make the price more bullish towards 82.90 and 84.90 as the final target. Look for buying into dips.

For a look at all of today’s economic events, check out our economic calendar.

Cheers and safe trading,

Nenad

 

USD/JPY Price Forecast – US Dollar Breaks ¥110 After Jobs Report

The US dollar has rallied during the course of the trading session on Friday, breaking above the 50 day EMA and of course the psychologically important ¥110 level. That is an area that of course is an important area that we have seen tested multiple times in both directions. The market has a significant amount of resistance just above here at the ¥110.75 level, so whether or not we can break above there is a completely different question, and quite frankly would not be surprised at all to see that area fail. Furthermore, if you look at this chart you can make a little bit of an argument for a descending channel as of late.

USD/JPY Video 09.08.21

If we do turn around a break down below the 50 day EMA, then I think we will start granting down towards the 200 day EMA underneath, which is currently sitting at the ¥108.50 level. After all, the area of about one handle above or we are right now significant resistance that extends all the way to the ¥112 level. It is a longer-term area to worry about, so it makes quite a bit of sense that it would take a massive amount of effort to get through. With that being the case, I think it is only a matter of time before we roll over.

That being said, if the pair does tend to go higher over the longer term, I do not necessarily know that I would be a buyer of this one, but I might be convinced to buy pairs with a bit more alpha, speaking specifically of the GBP/JPY pair, AUD/JPY pair, and the NZD/JPY pair.

For a look at all of today’s economic events, check out our economic calendar.

USD/JPY Price Forecast – US Dollar Continues Upward Momentum

The US dollar has rallied a bit during the course of the trading session on Friday to reach towards the ¥110.50 level, an area that has been important a couple of times in the past, and it is an area that should attract a certain amount of attention. If we can break above the ¥111 level, then it is likely that we go looking towards the ¥112 level. That is a major resistance barrier going back several months and years, so if we can break above there then it is likely that we could continue a longer-term move.

USD/JPY Video 26.07.21

If we pull back from here, the 50 day comes back into the picture which happens to be just below the ¥110 level. Ultimately, this is a market that I think will try to decide what to do next, because if we break down below there then we could dip towards the ¥109 level. I think the only thing that you can count on in this market is going to be choppiness and noisy behavior. This makes quite a bit of sense considering that both currencies are considered to be “safety currencies”, and therefore it does make quite a bit of sense that we go choppy more than anything else.

In fact, when you look at this chart a lot of times you can use it as an indicator as to where the Japanese yen is going to moving in general. If this pair falls, a lot of times I will short something else like the AUD/JPY, GBP/JPY, etc. On the other hand, if this pair rises then it makes sense that this pair signals that those other pairs could go higher. In that sense, this is a tertiary indicator.

For a look at all of today’s economic events, check out our economic calendar.

The Stock Market Is At An Important Inflection Point

Within my latest piece discussing the merits of deflation, I briefly touched on how several leading economic indicators appear to be signally growth may have peaked for the time being. Whilst these business cycle and growth metrics are not necessarily useful on their own, when the price action of equities appear to be confirming the macro message; it may be time to pay attention. Such at time appears imminent.

Looking at two of my preferred leading macro indicators of the business cycle, the ERCI weekly leading index and global credit impulse, both are signaling peak growth may be in the rear view mirror.

Source:    Economic Cycle Research Institute

Source: Economic Cycle Research Institute

Source:    Alfonso Peccatiello - The Macro Compass

Source: Alfonso Peccatiello – The Macro Compass

Confirming this message are the most economically sensitive sectors of the stock market. Retail, transports, metals/mining, materials and the industrials sectors have all underperformed these last few months relative to the S&P 500. When the markets goes on the make a new high and all economically sensitive sectors such as these do not confirm the new high, it is a clear signal the new highs are not being supported by economic fundamentals.

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Indeed, these recent highs have seen a significant rotation out of the reflation and value type sectors back into the growth darlings. Market breadth, another excellent measure of market internals, has too not confirmed the recent highs. We are seeing significant bearish divergences in almost all measures of breadth, and the recent rally is almost solely being driven by the likes of Apple and Amazon.

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In the past, periods of poor breadth amid new highs in the major indices have generally lead to at least some form of correction or consolidation. It is perhaps unsurprising then to see that small-caps and emerging markets have gone nowhere over the past six months (in a similar manner to the economically sensitive sectors illustrated above) whilst the broad market has continued to march higher.

Capture.PNG

The market is now almost entirely being driven by a rotation out of cyclical sectors and back into tech, FAANG and defensive stocks.

Capture.PNG

Such periods of tech outperformance coinciding with the market cap weighted S&P 500 outperforming the equal weighted S&P 500 have been reminiscent of market tops in recent months.

Capture.PNG

Continuing this theme of non-confirmation are investor risk-appetites. Firstly, the pro-cyclical currency pair of AUD/JPY and AUD/USD both appear to be rolling over. The strength of the Aussie dollar is generally a good proxy for risk-on and risk-off type environments.

sc-3.png

Extending this out to a longer-term perspective, another chart I referenced within my deflation article was the long-term AUD/JPY FX pair, which looks to have broken out of its bearish rising wedge pattern at the top of its near decade trading range.

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Continuing with risk appetites via the VIX, which is effectively investors expectations of volatility over the coming month, the VIX has not made new lows over recent months as the market has gone on to make new highs. Such divergences between the two have typically preceded periods of market turmoil in the past.

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Turning now to the technicals, they too are bear a similar message. On the weekly chart, we are seeing slight negative divergences in RSI and money flow, accompanied by a 9-13-9 weekly DeMark sequential sell signal.

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What’s more, we are amidst a seasonally weak period of stocks, almost indicative of what I have detailed above. Clearly, we can see on many different measures that stocks are seemingly at risk of some form of correction, or at the very least, a period of consolidation.

SPY Seasonality.jpeg

In isolation, these indicators and measures are not of much use, but, in the case where they align to tell a similar story at once, it is important to take heed. I personally tend to favor trades and investment opportunities whereby fundamentals, technicals, sentiment and macro all align. For the most part, now appears to potentially be such a time.

However, I shall stress I am by no means predicting a significant risk-off event is imminent. For fear of being labelled a “perma bear”, let met be clear I am merely presenting a number of important measures investors should take heed of as part of their own due diligence and risk management. The clear takeaway from what I have presented above is that the risk-reward set-up for equities is not overly favorable at present. Nevertheless, there does remain pockets of value and opportunity still to be found within these markets.

Those who have been readers of my previous writings will be well aware of how I have deemed there to be several decent buying opportunities in the gold and precious metals market of late. At the risk of repeating myself once more, dare I say it but today stands as another such opportunity for investors seeking to deploy capital. In terms of valuations and fundamentals, the gold miners are clear standouts.

Source:    Sprott via Ronnie Stoeferle

Source: Sprott via Ronnie Stoeferle

However, fundamentals in isolation may not necessarily be meaningful if they are already priced in. It does however appear this is not the case. We can see this by comparing the divergence between the gold price and real interest rates. This is an inverse relationship that has historically nearly always held up, and is a key driver of the gold price. Given how real rates remain deeply negative today, it seems only a matter of time before the gold price catches up to real rates. One way to view this is by using TIPs as a proxy for real rates relative to gold.

Capture.PNG

Will gold follow real rates? Seasonality suggests it will.

deflation.jpeg

To conclude, the market appears to be running our of gas. I for one would use a potential pull-back as a buying opportunity for several sectors and assets I am bullish on. I love the green-energy trades in uranium, copper and carbon credits, but, given how far these sectors and assets have come in the past year I would love to see further weakness before I begin buying. Again, that does not mean opportunities are not present right now, gold is perhaps the perfect example, and it looks like it may be an excellent time for investors to take profits out of the favored and deploy capital into the unfavored.

For a look at all of today’s economic events, check out our economic calendar.

Exclusive: BOJ Seen Cutting This Year’s Growth Forecast as COVID-19 Curbs Hurt Outlook

But the central bank is likely to maintain its view the world’s third-largest economy is headed for a moderate recovery as robust exports and output offset some of the weakness in consumer demand, said four sources familiar with its thinking.

The expected downgrade highlights Japan’s struggle to contain the COVID-19 pandemic, as slow vaccine rollouts and a resurgence in infections force authorities to declare a state of emergency for Tokyo just 16 days before the Olympic Games begin.

“The foundations of a recovery are in place, but the timing may be delayed somewhat,” as the curbs weigh on the economy’s expected rebound in the current quarter, one of the sources said, a view echoed by three other sources.

In most recent forecasts made in April, the BOJ expected the economy to expand 4.0% in the current fiscal year ending in March 2022, higher than a 3.6% growth projected in a Reuters poll.

At its July 15-16 policy meeting, the BOJ will likely cut the current year’s growth forecast in fresh quarterly and inflation projections, the sources said. It is also widely expected to keep monetary settings unchanged.

In the new estimates, the BOJ will likely revise up this fiscal year’s consumer inflation forecast mainly reflecting the boost from recent rises in energy costs, the sources said.

The growth projections for next fiscal year ending in March 2023 will depend much on when households begin to feel safe enough to boost spending on leisure and travel, analysts say.

The central bank currently expects the economy to expand 2.4% next fiscal year and 1.3% the following year.

The BOJ estimates that households have 20 trillion yen ($182 billion) in “forced” savings accumulated last year due to stay-at-home policies, which could be tapped when vaccines are rolled out widely.

Japan’s economy shrank an annualised 3.9% in January-March and likely barely grew in the second quarter, as the pandemic took a toll on service spending.

Analysts and policymakers had expected the economy to enjoy a solid rebound in the latter half of this fiscal year, in part hoping that steady vaccinations and removal of curbs would spur pent-up demand for leisure and travel.

For a look at all of today’s economic events, check out our economic calendar.

($1 = 110.0400 yen)

(Reporting by Leika Kihara and Takahiko Wada; Editing by Shri Navaratnam)

 

Few FX Pairs Where We Are Still Waiting for a Breakout

First one is the GBPUSD pair, where the price is inside the flag formation, just below crucial long-term highs. Breakout to the upside, will give us a signal to buy.

The USDJPY pair is testing the lower line of the flag. Breakout should activate more sellers.

The EURGBP pair with a descending triangle pattern. Currently aiming its horizontal support.

The EURJPY pair testing the neckline of a big H&S pattern. That can result with a breakout.

The CHFJPY pair with a H&S pattern on a long-term resistance. Possibly an interesting trade for the sellers.

The AUDJPY pair is trying to break the upper line of the triangle but the first attempt looks bad. It is possible that a false breakout is happening right this moment.

The GBPJPY pair showing the beauty of price action. First two pennants and now very clean flag. Breakout to the upside can be a great buy signal.

For a look at all of today’s economic events, check out our economic calendar.

Terrible Month for USD but Maybe the Last Day Will Be Better

Gold attacked a crucial support again but this time with a very sharp fall.

Brent oil initiated a bearish correction.

The Dow Jones is still in a pennant waiting for a breakout.

The DAX is still in a rectangle pattern also patiently waiting for a direction.

The EURUSD has started a bearish correction.

The Canadian Dollar is still going stronger.

The EURAUD is in a symmetric triangle waiting for a breakout.

The AUDCHF is in a similar situation.

The EURNZD is also waiting to end the sideways trend but in this case, the price is locked inside of a rectangle.

The AUDJPY defends a crucial support level after the bullish breakout from the triangle. It’s an interesting opportunity in terms of risk to reward ratio.

The ZARJPY defends the neckline of the head and shoulders formation.

The USDHUF is in a long-term sell signal after the price drops below the major support.

For a look at all of today’s economic events, check out our economic calendar.

USD/JPY Price Forecast – US Dollar Threatens 109 JPY

The US dollar rallied significantly during the course of the trading session on Thursday to test the top of the shooting star from the previous session, suggesting that we are going to try to break above it. If we do, that would be an extraordinarily bullish sign, and could send this market towards the ¥110 level again. This is probably not about the US dollar, but more or less about the Japanese yen as it is getting hammered by several different currencies right now.

USD/JPY Video 30.04.21

The 50 day EMA is currently offering support, and it does look like the market is respecting that. Furthermore, the 38.2% Fibonacci retracement level has offered support, and we did form a couple of hammers in that general area. That being the case, I think that the uptrend can continue, but if we were to break down below this hammers, that could open up a move down to the 200 day EMA.

Ultimately, I think that the Japanese yen is a currency that is going to be in trouble going forward, due to the lack of yield coming from the bond market. With this being the case, I do look to buy the dip in not only this pair but multiple other ones like the AUD/JPY, NZD/JPY, and even the lowly CHF/JPY pairs. With this being the case, I think that we have much further to go, and, in this pair, I suspect that ¥110 will be the next target if we can break above that shooting star.

For a look at all of today’s economic events, check out our economic calendar.