Trade view /
17 August 2016 at 8:41 GMT
We are buying USDJPY on bullish reversal after the break below 100.00 was rejected.
The US dollar saw a brief meltdown through key support levels in a number of USD pairs on dovish rhetoric from a couple of peripheral Federal Reserve officials, before the more influential New York Fed’s Dudley and another Fed official made hawkish comments pointing to high odds of rate increases at coming Federal Open Market Committee meetings.
We see US bond markets at a key support levels after an ugly selloff yesterday and a break lower (yields higher) could act as a significant JPY negative as Japanese investors could unwind hedges on foreign bond purchases.
Technically, we have a bullish reversal in the action as pointed to in the chart commentary below.
It’s hard to see why Dudley would come out with clearly hawkish language pointing to rate hike risks at coming meetings if didn’t believe that Fed chair Janet Yellen also supports this view. It should also be noted that the Brexit has not only failed to trigger any global market contagion, but US equities traded at all-time highs this week.
Yellen’s speech next Friday at the Jackson Hole Fed Conference could be critical in this regard.
The market may be unwilling to challenge the 100.00 level again before the Bank of Japan meeting on September 21, leaving a large range to explore to the upside in the meantime.
The reversal back through the 100.00 level and even the local 100.70 prior low takes the focus back higher for the bulls as a false break lower is suggested. The next key development will be a break into the Ichimoku cloud (that level changes dynamically) and the top of the cloud near 105.00. Less aggressive traders may look to take partial profits around these levels and re-enter on retracements. A solid rally from here would also confirm the evidence of momentum divergence in the MACD indicator.
Source: Saxo Bank
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Source: Saxo Bank
Management and risk description
The stop is rather closely placed relative to average trading ranges and could be triggered on ad hoc developments. The FOMC minutes are ahead tonight and could show a sufficiently dovish bias in the policy discussion to warrant a USD selloff as the market seems highly susceptible to signals in what appears to be a nervous, somewhat thinly traded summer market.
Entry: buy in 100.60-90 range.
— Edited by Michael McKenna
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