BoJ remained on hold at -0.10% as was widely expected, while there was little reaction on USD/JPY upon announcement. The Bank altered its July projections slightly to the downside as was also expected, giving the event a more dovish tone. Main comments could include BoJ’s intention to continue to buy JGB’s at a flexible manner and that risks are skewed to the downside, regarding price and economic outlook. Despite the overall event rolling out with little surprise, we could see a bearish mood setting in for JPY.
USD/JPY rallied yesterday, breaking the 112.72 (S1) resistance line (now turned to support) and testing the 113.25 (R1) resistance level, during today’s Asian session. We see the case for the pair to continue to trade in a bullish market, as an upward trendline has been forming since the 26th of October. However, we would like to see more higher troughs confirming the upward trend line. Also the RSI indicator for USD/JPY in the 4 hour chart, has reached the reading of 70, implying a rather overcrowded long position. If the bulls continue to dictate the pairs direction, we could see the pair breaking the 113.25 (R1) resistance line and aim for the 113.95 (R2) resistance level. If the bears take over, we could see the pair breaking the 112.72 (S1) support line and aim for the 112.15 (S2) support zone.
GBP weakens on ongoing Brexit concerns
Ongoing Brexit concerns seem to have overshadowed a brief optimism of Hammond’s recent statements for the end of austerity. The pound weakened against the USD and the EUR yesterday, as traders seem to be anxious about the ongoing Brexit negotiations. Despite the UK finance minister offering higher spending for public services and national debt, he also made it clear, that such provisions would be dependent on the agreement with the EU, regarding Brexit. Analysts point out that an agreement with the EU does not seem closer and that remains the main issue for the pound right now. Focus for GBP traders is turning to BoE’s interest rate decision on Thursday, amidst a bearish sentiment.
GBP/USD tumbled yesterday, breaking the 1.2780 (R1) support level now (turned to resistance) and stabilised by testing the 1.2700 (S1) support line. We maintain a bearish outlook for the pair as downward trendline remains intact. It should also be noted that in the 4 hour chart of cable, the RSI indicator remains well below the reading of 30, intensifying worries created by a possibly overcrowded short position. Should the pair continue to be under the market’s selling interest, we could see it breaking the 1.2700 (S1) support line and aim if not breach the 1.2630 (R2) support barrier. On the other hand, should the market favour the pair’s long positions, we could see cable correcting and breaking the 1.2780 (R1) resistance line.
In today’s other economic highlights:
In the European session we get Germany’s retail sales growth rate for September, France’s preliminary CPI rate for October as well as Eurozone’s preliminary release of the HICP rate for October. In the American session, we get from the US the ADP employment change figure and Canada’s GDP growth rate for August. As for speakers, Bank of Canada’s Governor Stephen Poloz speaks. Also note, that the US EIA crude oil inventories figure will be released today and could create volatility for oil prices. Please be advised that the API weekly crude oil inventories figure were released yesterday with an injection of 5.7 million barrels. Despite the injection, oil prices rose by nearly 3 USD at the moment of the release. Should you be interested on further oil fundamentals and technical analysis, please refer to our oil weekly outlook, to be released later today.
USD/JPY H4
Support: 112.72 (S1), 112.15 (S2), 111.63 (S3)
Resistance: 113.25 (R1), 113.95 (R2), 114.55 (R3)
GBP/USD 4H
Support: 1.2700 (S1), 1.2630 (S2), 1.2565 (S3)
Resistance: 1.2780 (R1), 1.2850 (R2), 1.2920 (R3)
