USD/JPY, AUD/JPY Analysis: Asian Open – 1st August 2023

Market Summary:

• Europe avoided a technical recession in Q2 with GDP rising slightly more than expected at 0.3$ q/q (or 0.6% y/y)
• The BOJ intervened in the Japan’s bond market when the 10-yer yield rose to a 9-year high of 0.6%, just one trading day after announcing it would allow the yield to rise above 0.5% “by a certain degree”. The markets wasted little time to determine how much flexibility there was around 0.5%, and they have their answer at 0.6%. USD/JPY reached a 3-week high on a weaker yen.
• Signs that higher interest rates are slowing the US economy were revealed in a Fed survey, with US banks reporting tighter credit and softer loan demand from consumers and businesses.
• Strong earnings helped Wall Street indices post gains in July, with the Nasdaq 100 rising 3.8% and the S&P 500 up 3%. The Nasdaq’s bank index (IXBK) rose 15.6%, led by First Foundation (FFWM)
• A series of softer inflationary data sets from the US saw the US dollar index fall for a second month, despite recovering 2.5% over the past two weeks
• Commodities clearly benefitted, with WTI crude oil rising 7.8% in July, silver up 7.7% and gold posting a 2.3% gain.
• Australia could be facing an election over a year ahead of schedule, as oppositions parties are blocking a housing bill once again (governments can dissolve both houses of parliament is a bill is blocked twice)
• A measure of New Zealand’s business confidence rose to its least pessimistic level since September 2021. The ANZ report said that whilst the economy was slowing, its “certainly not coming to a sudden stop” and that “inflation indicators crept mostly lower, but cost expectations lifted, and the proportion of firms expecting to raise wages increased”.

Events in focus (AEDT):

• 09:00 – Australian manufacturing PMI
• 09:30 – Japan’s retail sales, unemployment, jobs/applications ratio
• 11:30 – Australian building approvals and housing credit
• 14:30 – RBA interest rate decision: The odds favour a pause given softer inflation and retail trade data. Cash rate futures also imply just a 14% chance of a 25bp hike, so it would come as a surprise if they did and likely support AUD. But if they do, perhaps they’ll throw a 15bp curveball to get us to a nice quarter-point figure of 4.25%.

ASX 200 at a glance:

• The ASX 200 rose 2.9% in July with 9 of its 11 sectors posting gains, led by energy and financial stocks
• But the month close with a day of indecision via an inside day and Doji, which closed just above 7400
• SPI futures point to a positive open today, although 7400 likely remains to be a pivotal level
• If the RBA hold rates as expected, it could provide support for the ASX whilst a surprise hike could send it lower
• A break beneath Friday’s low of 7357 confirms a 2-bar bearish reversal pattern on the daily chart and brigs 7300 into focus

AUD/JPY daily chart:

An interesting setup has formed on AUD/JPY. The daily trend structure has been bullish overall since the March low, although volatility has picked up since the June high and the cross has oscillated its way lower, offering swing traders some decent opportunities. A bullish pinbar formed on Friday and rebounded back above the 200-day EMA and closed above the 100-day EMA. Friday saw bullish range expansion and closed above the 50 and 20-day EMAs, although resistance was met at the trendline. Given the MA are fanning out and we’ve seen a strong rebound from the 200, perhaps a bullish breakout is on the cards. Bulls could either wait for a break of yesterday’s high, or seek dips around the 20-day EMA of Friday’s high in anticipation of an eventual break higher.

USD/JPY 1-hour chart

A strong impulsive move formed on the 1-hour chart of USD/JPY. Prices are now consolidating near the highs just above 142, and the daily pivot point sits just beneath the previous cycle high which makes the 142 area a potential support zone (or pivotal area, should prices break beneath it and turn it into resistance. If it can build support above to around 142, perhaps bulls will have another crack at the 143 handle, just around the daily R2. However, given the strong rally yesterday, traders may want to remain nimble, or also be on the lookout for a deeper pullback below 142 ahead of its next leg higher towards 143.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge