USDJPY directional preference is not one-sided

EUR USD (1.2755)
Euro weakness continued on Friday. Especially following US data that showed fractionally firmer import prices and stronger retail sales than the market had expected. This re-opened the debate about the wisdom or otherwise of the Fed’s decision to pause last week. Of course, the new information is unlikely to have any noticeable impact on the Fed’s medium-term forecasts, which are the basis of its rate decisions. But the apparent undermining of its two key assumptions, slowing growth and peaking inflation, just days after they were restated, may cause market participants to overweight the data. Central bank selling was also cited on Friday – for the second consecutive day. This offer is still in the domain of rumour. But we do note at least two occasions by short-term traders to try to pick a bottom over the last two sessions.

In both cases, this effort came to nothing. There must be some sellers in the market who are obviously not buying the positions back again. Friday’s post-data decline to a 1.2715 allowed us our desired entry into the ‘last’ bullish strategy that we described in our previous report. The risk-limit was (and still is) set exceptionally tight at 1.2710 as, below there, a worrisome demand situation exposes a risk down to 1.2420. The objective to the new strategy is a return to the recent peak at 1.2910.


USD JPY (116.40)
Weak Japanese GDP data and strong US retail sales figures caused traders to review their predictions for the interest rate differentials on Friday. Yet, although the dollar rallied steadily to a 116.40 peak, the news focus is by no means one-sided. Yuan flexibility remains a dominant theme, especially as it is being addressed more directly by the new US Treasury Secretary. Traders also note the BOJ’s efforts to keep the door open to the idea of more rate hikes this year. Thus, a directional bias is still not apparent. The nearby points for the dollar are at 115.55/60 and 1115.05 to the downside, and at 117.30/35 and 118.40 to the upside.

EUR JPY (148.35)
The cross rebounded comfortably from its midweek correction on Friday. The critical point to the downside, 146.10, was never in danger. This point remains valid for today, but the euro is better defended at 147.75 now. In case of a move to new highs (above 148.60), one should still expect offers to emerge almost immediately at 148.75. Only beyond there will the going become a little easier up to 149.50.

GBP USD (1.8935)
We suspect that would-be dip-buyers had their chance to act at the end of last week. This means that Cable has lost much of the dynamism that drove it higher over the last few weeks; in case of a bounce, profit-taking will kick in as early as 1.9050 now. This also means that the risk for a correctional drift down to 1.8655 has also emerged. Earlier support stands at 1.8780 for today.

AUD USD (0.7675)
Friday’s late slip back to our 0.7655/60 support zone, gave us the opportunity to re-open a bullish strategy. This level, which proved to be the low, also marks the exceptionally tight risk-limit to the strategy. The objective is at 0.7810. Intermediate resistance stands at 0.7745.