USD/JPY Outlook Hinges on BoJ/Fed Policy; 105.40 Hurdle in Focus


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  • AUD/USD may work its way back towards the top of the ascending triangle as it preserves the upward trend from earlier this year, while the Relative Strength Index (RSI) retains the bullish formation carried over from the summer months; with market attention turning to the slew of central bank rate decisions on tap throughout the first full-week of November, the fresh rhetoric out of the Reserve Bank of Australia (RBA) may boost the appeal of the Australian dollar especially as the central bank is scheduled to release its quarterly monetary policy report on November 4.
  • It seems as though Governor and Co. will continue to endorse a wait-and-see approach for monetary policy as the central bank anticipates the low-inflation environment to ‘remain the case for some time,’ but a material shift in the policy outlook may heighten the appeal of the higher-yielding currency should the RBA show a greater willingness to gradually move away from its easing cycle; will also keep a close eye on Australia’s 3Q Retail Sales report, with private-consumption projected to increase 0.2% following the 0.4% expansion during the three-months through June.

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  • USD/JPY may face range-bound conditions even after the Bank of Japan (BoJ) and the Federal Open Market Committee () interest rate decisions as both central bank are widely anticipated to retain their current policies in November; however, fresh updates from Governor and Co. may drag on the should the central bank push out its forecast for achieving the 2% target for inflation.
  • As a result, the BoJ may keep the door open to further embark on its easing-cycle, but it seems as though the central bank will carry its wait-and-see approach into 2017 as officials continue to assess the impact of the quantitative/qualitative-easing (QE) program with ‘yield-curve control.’
  • Former-resistance around 104.20 (61.8% retracement) may continue to offer near-term support as market participants wait for the fresh batch of central bank rhetoric, with the first topside hurdle standing at 105.40 (50% retracement) followed by 106.60 (38.2% retracement).
  • The shows a bit of back and forth in AUD/USD positioning, with the retail crowd flipping back net-short going into the end of the month, while traders have been net-long USD/JPY since July 21.
  • USD/JPY SSI sits at +1.08 as 52% of traders are long, with short positions 32.6% higher from the previous week, while open interest stands 4.7% above the monthly average.
  • AUD/USD SSI sits at +1.29 as 56% of traders are long, with long positions 19.7% higher from the previous week even as open interest stands 3.5% below the monthly average.
  • After hitting a 2016-extreme of +6.04 in September, the USD/JPY SSI ratio remains in focus going into November as the retail crowd appears to be selling into the near-term advance in the exchange rate.

— Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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