USD/JPY plunge hesitates at major price level ahead of Bank of Japan decision
James Chen, CMT January 17, 2018 3:00 PM
For the second day in a row, the heavily-battered US dollar index showed signs of rebounding and rallying from extreme lows early in the day, only to pare those gains and dip into negative territory further into the trading day.
For the second day in a row, the heavily-battered US dollar index showed signs of rebounding and rallying from extreme lows early in the day, only to pare those gains and dip into negative territory further into the trading day. In the case of USD/JPY, the currency pair also pared a bit of its earlier gains, but did not fall back as far as the dollar index only because the Japanese yen was also showing substantial weakness itself against other major currencies. This yen weakness was due in part to sharply rallying US equity markets that rose more than 1% on a strong start to earnings season, which weighed on both market volatility and safe-haven demand for the yen.
Looking ahead to early next week, a key event that is likely to have a significant impact on the yen will be Tuesday’s monetary policy and interest rate decision from the Bank of Japan. Though there are no expectations of any changes to the longstanding negative interest rates, markets will be watching closely for any signs that the central bank may be looking to wind down its massive stimulus program at some point in the foreseeable future. Last week, the BoJ unexpectedly reduced its purchases of Japanese government bonds, which provided a sharp boost for the yen on speculation that the central bank may be leaning towards tighter monetary policy.
In the event that the yen does indeed receive a boost from a more hawkish Bank of Japan, and the US dollar remains weighed down for the time being by continued bearish sentiment, USD/JPY could be poised to continue its sharp breakdown. Currently, the dive from last week has reached a low and hesitated just above the key 110.00 support level, which is also in the vicinity of the 62% Fibonacci retracement of the last major up-move (between early September and early November). Amid continuing bearish sentiment towards the US dollar and ahead of the potentially market-moving Bank of Japan decision early next week, the key level to watch continues to be the noted 110.00 support area. With any sustained breakdown below 110.00, extending the recent dive, the next major downside target is around the important 108.00 support level.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.