USD/JPY teases bullish interest as mean reversion kicks in for USD

Nvidia (NVDA) shares initially fell over 8% after hours despite beating earnings estimates, as their Q3 revenue outlook was revised -2% lower. Q2 EPS was at $0.68 compared with $0.64 expected and revenue of $30 billion compared with vs $28.7 billion expected. The board also approved an additional $50 billion in share repurchase authorization. Nasdaq 100 futures fell -1% following the earnings report.

Wall Street indices were already lower ahead of Nvidia’s highly anticipated earnings report, with incoming US GDP, jobless claims data and PCE inflation reports also weighing on sentiment. I was right to be suspicious of the Dow Jones record highs printed earlier this week, as the cash index fell as much as 1% from Tuesday’s minor record high on Wednesday. That isn’t to say it cannot go higher from here, but the marginal 0.2% record highs set on Monday and Tuesday – which weren’t backed up by the futures market or the S&P 500 – served as a warning not to jump in around the highs.

 

  

• USD dollar was the strongest major as mean reversion finally kicked in, although month-end flows could be at play given there was no significant news to drive it.
• EUR/USD was down -0.6% and formed a bearish engulfing day which closed below the December high, after forming a double top around 1.12 earlier this week.
• GBP/USD fell from its 17-month high and erased all of Tuesday’s gains, sending a warning to bulls after an extended run from its August low
• Crude oil was lower for a second day on a combination of China demand concerns, a smaller-than-expected draw on US stockpiles and a stronger US dollar
• AUD/USD saw a false break of 0.68 after a middle-of-the-road CPI report proved unlikely to move the dial for the RBA’s cash rate
• Gold futures formed a bearish engulfing day and fell -0.6% after prices failed to retest its all-time high set last week

 

 

The yen is too strong for the BOJ’s liking

The BOJ continued to try and guide the yen lower, after market excitement of BOJ hawkishness alongside the safe-haven flows during a spell of market turbulence sent the yen soaring. The BOJ’s deputy governor Himino warned that a stronger yen may lower profits for export industries and multinationals, and that they will closely monitor developments in recent market volatility and the stronger yen. This plays nicely with my hunch that USD/JPY is indeed oversold and due a bounce. Earlier analysis sought dips towards 144 for a potential long. And as I also suspect the US dollar is oversold I’m now looking for some mean reversion higher.

 

 

USD/JPY technical analysis

I have noted a few times that the fall from the July high to August low on USD/JPY may need another corrective leg higher. Prices have drifted towards the 144 handle and are now trying to form a base, with a small bullish hammer potentially marking a low Monday.

Pullbacks towards the 144 handle (or at a push) Monday’s low could tempt bullish swing traders for a lower-risk entry, in anticipation for a move towards the high-volume node (HVN) around 146.

 

Events in focus (AEDT):

It’s a relatively quiet day for APAC economic data, although NZ business confidence warrants a look – and AU capex could provide a slight lead on Australia’s GDP figures. European inflation figures could weigh further on the euro (and benefit USD) if they come in soft. Attention then shifts to US GDP and jobless claims figures. With so much attention now on US employment data, we could find that jobless data gains a lot more attention than usual. A healthy GDP report from the US could also support sentiment as it plays into the multi-Fed cuts with an economic soft-landing narrative.

 

• 11:00 – NZ business confidence
• 11:30 – AU capital expenditure
• 15:00 – JP household spending
• 17:00 – ES CPI
• 18:00 – DE state CPI
• 19:00 – EU economic sentiment, inflation expectations
• 22:30 – US GDP, jobless claims

 

 

 

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge