USDJPY Volatility Alert: President Trump Takes Office and BoJ Ah
It's a big week ahead for USDJPY traders and volatility has already started to increase to reflect that. Last week USDJPY bounced between a high on Tuesday of 158.20 and a low on Friday of 154.98, before recovering to close the week back at 156.27.
Now much of that USDJPY volatility was tracking US 10 year bond yields, which fell after US inflation prints on Tuesday (PPI) and Wednesday (CPI) were not as high as some economists had feared, before bouncing on Friday.
However, in the week ahead markets face a much sterner test. Donald Trump finally takes office on Monday as President of the United States, and after much speculation, traders and investors will finally get to see how strong he will be from day one regarding trade tariffs on key trading partners China, Canada, Mexico and the EU, as well as tax cuts and other election spending commitments.
Will he be measured in his approach, starting small on trade tariffs and suggesting there could be more to come if certain stipulations aren't met, which may see the dollar trend lower, or will he go big from the start, with blanket global tariffs on all goods, which could stoke inflation fears, see US bond yields start climbing again, taking the dollar back up to higher levels.
Now the BoJ get to watch this all unfold in real time and digest the impact President Trump's actions have on the direction of USDJPY before they decide whether or not to raise interest rates on Friday morning at 0300 GMT. Market expectations are for hike of 25bps (0.25%) after BoJ Governor Ueda stated last week that policymakers were considering a potential move. However, the BoJ have disappointed before and if USDJPY isn't pushing back up towards 160 again they may wait for another month of economic data readings.
So may be there is potential for more USDJPY volatility than usual, and being prepared is always important. So, lets take a look at what the technicals say.
Are USDJPY Technicals Telling Us Anything?
Since posting the recent 158.88 recovery high on January 10th, price corrections have developed, in an attempt to unwind over-extended upside conditions.
Within this type of price activity, it can sometimes be Fibonacci retracement levels that highlight potential support, and so far at least, it has been the 38.2% level at 154.98, that has held weakness. While much depends on future price activity, this support level may continue to be the focus at the start of the week.
While this level remains intact, it’s possible fresh attempts to resume strength can be seen and extend what is still a positive pattern of higher highs and higher lows in USDJPY prices, materialising since September 16th.
If this proves to be the case, a potential resistance level may be the Bollinger mid-average at 157.32, and while closing breaks are not guaranteed, if it were to happen such moves may see a more extended phase of price strength towards higher levels.
What if Support at 154.98 Gives Way?
The 154.98 retracement support is still intact to start the week, and while this remains the case the potential may prove to be to the upside,. However, closing breaks lower, if seen could skew risks towards a resumption of price weakness towards support at 153.77, which is the 50% level on the chart above, or even 152.67, the 61.8% possible support.
The material provided here has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Whilst it is not subject to any prohibition on dealing ahead of the dissemination of investment research, we will not seek to take any advantage before providing it to our clients.
Pepperstone doesn’t represent that the material provided here is accurate, current or complete, and therefore shouldn’t be relied upon as such. The information, whether from a third party or not, isn’t to be considered as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product or instrument; or to participate in any particular trading strategy. It does not take into account readers’ financial situation or investment objectives. We advise any readers of this content to seek their own advice. Without the approval of Pepperstone, reproduction or redistribution of this information isn’t permitted.
Now much of that USDJPY volatility was tracking US 10 year bond yields, which fell after US inflation prints on Tuesday (PPI) and Wednesday (CPI) were not as high as some economists had feared, before bouncing on Friday.
However, in the week ahead markets face a much sterner test. Donald Trump finally takes office on Monday as President of the United States, and after much speculation, traders and investors will finally get to see how strong he will be from day one regarding trade tariffs on key trading partners China, Canada, Mexico and the EU, as well as tax cuts and other election spending commitments.
Will he be measured in his approach, starting small on trade tariffs and suggesting there could be more to come if certain stipulations aren't met, which may see the dollar trend lower, or will he go big from the start, with blanket global tariffs on all goods, which could stoke inflation fears, see US bond yields start climbing again, taking the dollar back up to higher levels.
Now the BoJ get to watch this all unfold in real time and digest the impact President Trump's actions have on the direction of USDJPY before they decide whether or not to raise interest rates on Friday morning at 0300 GMT. Market expectations are for hike of 25bps (0.25%) after BoJ Governor Ueda stated last week that policymakers were considering a potential move. However, the BoJ have disappointed before and if USDJPY isn't pushing back up towards 160 again they may wait for another month of economic data readings.
So may be there is potential for more USDJPY volatility than usual, and being prepared is always important. So, lets take a look at what the technicals say.
Are USDJPY Technicals Telling Us Anything?
Since posting the recent 158.88 recovery high on January 10th, price corrections have developed, in an attempt to unwind over-extended upside conditions.
Within this type of price activity, it can sometimes be Fibonacci retracement levels that highlight potential support, and so far at least, it has been the 38.2% level at 154.98, that has held weakness. While much depends on future price activity, this support level may continue to be the focus at the start of the week.
While this level remains intact, it’s possible fresh attempts to resume strength can be seen and extend what is still a positive pattern of higher highs and higher lows in USDJPY prices, materialising since September 16th.
If this proves to be the case, a potential resistance level may be the Bollinger mid-average at 157.32, and while closing breaks are not guaranteed, if it were to happen such moves may see a more extended phase of price strength towards higher levels.
What if Support at 154.98 Gives Way?
The 154.98 retracement support is still intact to start the week, and while this remains the case the potential may prove to be to the upside,. However, closing breaks lower, if seen could skew risks towards a resumption of price weakness towards support at 153.77, which is the 50% level on the chart above, or even 152.67, the 61.8% possible support.
The material provided here has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Whilst it is not subject to any prohibition on dealing ahead of the dissemination of investment research, we will not seek to take any advantage before providing it to our clients.
Pepperstone doesn’t represent that the material provided here is accurate, current or complete, and therefore shouldn’t be relied upon as such. The information, whether from a third party or not, isn’t to be considered as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product or instrument; or to participate in any particular trading strategy. It does not take into account readers’ financial situation or investment objectives. We advise any readers of this content to seek their own advice. Without the approval of Pepperstone, reproduction or redistribution of this information isn’t permitted.
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