After keeping markets in a thrall for three months as USDJPY traded tight ranges finally the BoJ has decided to dip into its war chest pushing the pair up nearly four big figures coming up short of the 80.00 yen per dollar mark with highs at 79.53. From the timing of the intervention it appears that Japanese officials wanted to take action only after the threat of a Euro collapse and throwing good money for bad has been clearly averted with European leaders agreeing on what actions to take going forward. That said commentaries we now hear keep on talking of how futile the gesture is as unilateral action by a CB on a currency as big as the Yen is unlikely to see sustainable results. Already we have seen a pullback to the 38.2 Fib retracement level of yesterdays spike while more threats of rendering intervention useless are in the cards with the FOMC set to meet Wednesday. Once again the threat of a QE3 is rearing its head after the latest comments from the Fed’s number one and two, Vice Chair Janet Yellen and NY Fed Pres. William Dudley. What use will a 150 trillion Yen war chest be if the US decides to once more open the taps and water the financial garden. Ahead the big event for us will be the RBA’s latest policy decisions at 0330GMT with a rate cut of 25bps seen likely and a potential for getting Aussy weakness.
Following the broader picture Kiwi started the week with a big sell-off to close just above the 23.6 Fib retracement level of our rally from the last four weeks. Note this also puts prices just above the daily EMA lines and the 200D SMA along with the congestion resistance in the preceding two weeks. From indicators we have daily macd above its signal line to suggest a bullish market while stochastic has come-off the overbought levels. In 4H charts we have stochastic just pushing oversold the prior candles a spinning top while macd is down. Hourly indicators for their part is flat while stochastic has picked up. For now we prefer looking for base building above the 23.6 Fib area, 0.8059 before looking for a fresh surge up though an hourly close under the said prices should pave the way for further weakness.
Finally after months of waiting the BoJ has once again dipped into the market pushing USDJPY up to the 200D SMA with highs at 79.83 yesterday. From the timing it appears officials wanted to be sure that any intervention would not be quickly thwarted by a failure to come up with a unified front in Europe. For now the next key concern for Japanese officials should be increasing talk from several FOMC officials on doing QE3. Technically we find ourselves with a valid break of the 3-month congestion resistances around 77.54 with daily indicators pointing up. In intraday charts we have mixed signals from the 4H picture with stochastic dropping and macd still pushing up. Hourly indicators for their part has a confluence of bears. Given the false spike up at the open we now have an inverted hammer with a long wick in hourly candles. For now consider looking for a technical bounce off the 77.54 region note we expect BoJ/MoF to wait until after the FOMC meeting before taking further steps if warranted.
Starting with the BoJ driven run for US dollars, the Euro started the week with a big sell-off as traders begin to question the lack of details for the European leaders solution on fixing the debt problem. Note the Chinese response to proposals of having them provide the funding for EFSF’s leverage has been tepid. At the moment we have an ongoing attempt at a sell-off with prices trying to push under the daily EMA lines while macd tops off and stochastic heads for oversold levels. In intraday charts we have 4H indicators all bearish with stochastic in oversold levels. Hourly indicators for their part has stochastic coming off oversold areas while macd continues to drop. Look for a close under 1.3826 as a confirmation of a technical breakout, our objective the 1.3651 key support level.
Monday saw a sell-off in Aussy along with the broad based risk aversion. After 4 weeks of rallying we now face a possible big picture pullback with a busy calendar ahead in the week and an RBA rate cut expected later today. Among indicators we have a topping off in macd with stochastic coming out of overbought areas and also seeing a bearish divergence. From the 4H level we have both macd and stochastic heading lower while hourly charts for their part are mixed with macd below its signal but flat while stochastic has come-out of oversold levels. For now we are looking for a close under 1.0502 as an excuse for jumping short, alternative entry will be to come from below 1.0611. Price target should be 1.0372 given a 25bps rate cut by the RBA.
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