Yen selling looks short-lived

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By: Andria Pichidi

NZDJPY has remained buoyant at 70.70 after bouncing from a 5-month low on Friday at 70.42, on Yen selling. This price action comes with there being a little directional impulse in stock markets in Europe or Asia, but also as  Kiwi leads gains since Asia Pacific trading amid better risk sentiment.

Markets are anticipating major central banks to maintain their accommodative policy postures, if not suggest a more dovish stance. The Fed, BoJ, and BoE all meet this week and though none are expected to change rates, market participants will be eager to gauge any shift in tone.

In Japan, the BoJ meets Wednesday-Thursday and is widely expected to maintain an unchanged policy, attached with more-stimulus-if-needed-down-the-road guidance. Governor Kuroda last week told Bloomberg that the central bank had further tools in its stimulus toolkit, though he said further accommodation was not needed at the present juncture.

In data, Japan’s May trade report (Wednesday) should see the prior JPY 56.8 bln surplus flip to a JPY 1,000 bln deficit. May national CPI (Friday) should see overall inflation fall to 0.6% y/y from 0.9%, while on a core basis, we expect a 0.5% y/y reading versus 0.9% in April.

Either the BoJ or this week’s data releases are unlikely to have much directional bearing on the Yen. US-China trade tensions have taken a back seat ahead of next week’s G20 gathering, although the lack of preparatory ministerial-level meetings before the summit suggests that the best that could be hoped for is cordiality between the two sides. If not, the JPY expected to resume its upwards path, driven by safe-haven demand.

Hence the pair could return down to year’s lows. Today’s under-performance of the Yen reflects the overbought performance of the yen so far, hence it looks like a correction of the trend.

As the asset moved to the upside so far today, and on the break of the latest up fractal at 70.71, the further intraday incline is expected, with next immediate Resistance at 70.80-70.85 (50-period EMA in the hourly chart and midpoint of Friday’s bearish candle). Support is set at 70.60 (23.6% Fib level). A closing today above 70.85 could suggest the retest of 20-day EMA at 71.40 within the week, however, this scenario looks doubtful, as intraday bullish candles look to shrink something that suggests that incline is already running out of steam.

Hourly momentum indicators have been improved, however, they are still negatively configured.  The daily momentum indicators continue to signal further downwards movement for the asset, with MACD lines forming a bearish cross within the negative area and RSI close to 30.

Therefore overall outlook remains bearish for the asset from the technical but also fundamental perspective. Medium-term Resistance is set at 71.20 (Friday’s peak), 71.40 (20-day SMA). Support at 70.35 (day’s low)

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