News and Analysis

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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, commodity futures, or digital assets, 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 StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.




USD/JPY: BOJ intervention risk escalates but will it actually work?

Japanese officials are threatening to intervene in FX markets again, prompted by the USD/JPY surging over 2% since the start of September, leaving it at the highest level since November 2022. But with the yield premium the United States enjoys over Japan for benchmark government bonds expanding yet again, whether any form of intervention will work beyond the short-term – be it verbal or physical – is highly debatable.
Speaking earlier today, Japan's top currency diplomat Masato Kanda said authorities won't rule out any options on currencies if speculative moves persist, suggesting it is desirable for FX moves to be stable and reflect fundamentals.
The comments are the first we’ve seen from any Japanese official during this latest episode of yen strength, reinforcing yet again that it’s the speed, not the level of the yen, that gets policymakers feeling a little hot under the collar.

The USD is strong rather than JPY weak
But Kanda’s suggestion the latest move is driven by something other than fundamentals doesn’t stack up. Just look around the FX universe to see this is a strong US dollar story, rather than a weak Japanese yen one. Just look at the Chinese yuan, the Australian dollar, the euro and UK pound – they’re all getting hammered by various degrees, and for good reason. Softer economic data is fueling the view that rate hikes are over in those jurisdictions. At the same time, the US economy looks to be holding up far better, keeping the prospect for further interest rate increases in play. That, along with a strong US corporate debt issuance pipeline, is driving US yields higher, enhancing the USD’s appeal over other currencies.

Less BOJ intervention needed, not more
For a country such as Japan, whose household sector is looking extremely weak relative compared to the United States based on economic data, it’s no surprise global capital is flocking to the USD. Unless the Bank of Japan (BOJ) decides to loosen its grip on yield curve control – allowing Japanese government bond yields to move higher and narrow the yield gap to the US – any attempt to bolster the yen by intervening in markets will be near-useless beyond the near-term. Put bluntly, if Japan’s Ministry of Finance desires a stronger Japanese yen, it should be encouraging the BOJ to stop intervening as aggressively in the bond market, rather that intervening more in FX.

Prior intervention playbook
Kanda’s verbal warning is only a preliminary step before actual intervention occurs, unless the playbook has changed. Usually, markets will get further verbal warnings, often with more urgent language. Then comes spot checks by the BOJ on USD/JPY levels at Japanese banks before it will eventually pull the trigger. We're not at that point yet. And if the BOJ does intervene while yield spreads with the United States remain elevated, it will merely provide an opportunity for traders to reset fresh USD/JPY longs.

Key risk event looms for USD/JPY
If we are talking fundamentals, the next key event for markets to watch is Wednesday’s US ISM non-manufacturing PMI survey. If it continues to display the resilience of the US economy, especially if accompanied by stronger readings on employment and building inflationary pressures, it’s hard to see anything other than continued US dollar strength given how weak other services PMI readings have been around the world.

USD/JPY retreats for now
On the charts, Kanda’s threat has seen USD/JPY pullback towards previous resistance located at the August high around 147.30. For those looking to initiate longs, a stop below here will provide protection against an unlikely near-term BOJ intervention or a deterioration in the US ISM survey. On the upside, there’s not a lot of major levels to focus on until we get to the where the BOJ last intervened just below 152.00. USD/JPY did some work around 148.80 in the past, so that may be the first level to watch.

USD/JPY: Near-term downside risks build as Ueda discusses rate hike 11/09/2023


Markets may not have to wait until well into 2024 for the Bank of Japan (BOJ) to tighten monetary policy with Governor Kazuo Ueda confirming over the weekend that he could have enough data by year-end to determine whether to increase rates, sending the USD/JPY sharply lower in early trade on Monday.
"Once we're convinced Japan will see sustained rises in inflation accompanied by wage growth, there are various options we can take," Ueda told the Yomiuri newspaper in an interview conducted last week. "If we judge that Japan can achieve its inflation target even after ending negative rates, we'll do so.
Despite the moderately hawkish language, Ueda pored cold water on hopes for a near-term policy shift, reaffirming the bank will persist with ultra-easy monetary policy until it’s convinced inflation will remain around 2%, the BOJ’s official target.
"While Japan is showing budding positive signs, achievement of our target isn't in sight yet," he said, adding one of the key factors will be whether Japanese wage rises continue next year given the linkages to services inflation.

USD/JPY may decline further on narrowing yield differentials

Taken at face value, it suggests the BOJ’s next policy move may not to be to end yield-curve control (YCC), the practice of the bank purchasing large-scale volumes of Japanese government debt to suppress benchmark 10-year yields around 0%. Instead, it may be the abandonment of setting its overnight policy rate at -0.1% which has been in place since before the GFC.
While that may help reduce the yield deficit Japanese debt has to other advanced nations such as the United States at the extreme front-end of the interest rates curve, it’s likely that negative yield differential will have to narrow for longer timeframes, such as 10 years, to lead to a sustained downtrend in the USD/JPY.
Even though Ueda’s remarks on ending negative rates do not imply that will happen unless it’s driven by a recalibration of the expected US interest rate path, having recently tweaked YCC to allow for greater flexibility in the range 10-year Japanese yields are allowed to move, the BOJ could permit yields to rise to as high as 100 basis points, more than 30 basis points higher than where they currently sit.
Therefore, any data suggesting Japanese inflationary pressures are becoming more sustainable could see longer-date Japanese yields drift higher, potentially helping to narrow the differential to the US without a meaningful reduction in US yields.

USD/JPY down sharply on Ueda’s remarks

Ueda’s remarks had an instant impact once made public, pushing USD/JPY down more than a big figure from Friday’s close at one stage to as low as 146.64. The pair has bounced a little since but remains under pressure, adding to the case for near-term downside after trying unsuccessfully to break above 148 on several occasions last week. The US dollar index rally is also looking tired after eight weeks of consecutive gains, pointing to the possibility for profit-taking ahead of key market events.
On the downside, the uptrend that began in late July is the next level to watch around 146.50. A break of that would open the door for the pair to move back towards a support zone starting at 145.00. On the topside, sellers are likely to emerge on probes above 147.70.

Macro events that could prevent further USD/JPY downside

When it comes to macro events that could reverse the selloff, a watering down of hawkish rhetoric from the ECB – regardless of whether it hikes rates later this week – along with a hotter-than-expected US CPI report for August would result in renewed US dollar strength. With the Federal Reserve’s FOMC Committee meeting held next week, we will not hear from any Fed officials until the policy decision is made due to the media blackout.

GBP/USD: sticky situation for longs should UK wages growth undershoot 12.09.2023

Sticky wages growth is one of the few positives for the British pound right now, keeping the Bank of England (BOE) sufficiently concerned enough to contemplate continuing hiking rates given the strong linkages with services inflation.

UK wages data key for near-term GBP/USD moves.

With an update on the wages front arriving later Tuesday with employment data for July, it’s an opportune time to look at recent wage trends, especially with GBP/USD sitting at an interesting juncture on the charts.
A month ago in June, the UK Office for National Statistics (ONS) reported wages ex bonuses soared 7.8% from a year earlier, the highest level ever reported dating back to when the series was first published in 2001. The increase exceeded the 7.4% increase expected and came despite a surprise rise in the UK unemployment rate to 4.2% as the employed labour force shrunk by 109,000 in the preceding three-month period.
Looking ahead to later today, momentum in wages is tipped to moderate with economists forecasting an increase of 7.6% over the year with unemployment ticking up by a further tenth to 4.3%. Adding to the importance of the data, markets will also receive speeches from BOE monetary policy committee (MPC) members Catherine Mann and Chief Economist Huw Pill, providing a real-time assessment that may alter the view from economists and markets that the BoE will hike its bank rate later this month to 5.5%.

Data weakness may prompt accelerated GBP/USD selloff

With financial markets putting the odds of another increase at around 80%, any new information that suggests wages growth and labour demand is cooling faster than anticipated could place the British pound under renewed selling pressure.
On the daily, GBP/USD remains comfortably in the downtrend it’s been in since July. However, sitting just above its 200-day simple moving average at 1.2430, and having bounced off a long-running support and resistance line at 1.2460, a downside break of this zone could lead to an acceleration of the current downtrend, paving the way for an eventual push back to 1.2300, the 50% retracement of the June 2021 to October 2022 high-low. RSI and MACD are also no impediment to the possibility of further downside.
If the UK data comes out stronger it could bring the top of the trend channel into play, especially if US dollar weakness seen on Monday extends into another session. If that eventuates, it may provide an opportunity to position for a trend change but let’s not get ahead of ourselves.

USD/JPY: playing the range as BOJ invention threat counteracts fundamentals 22.09.2023

Should the Japanese government order the Bank of Japan (BOJ) to intervene in FX markets, it deserves the savage USD/JPY bounce that will almost inevitably be coming its way. Because rather than trying to convince traders that yen weakness reflects hyper-speculative forces detached from fundamentals, it needs to accept its own policies, and those of the BOJ, are what’s primarily responsible for suppressing the yen.

JPY weakness a consequence of policy divergence

By attempting to reflate the Japanese economy and flip the deflationary mindset that has been in place for decades, policymakers are purposely running extremely loose settings, especially on the monetary side. Contrast that to what’s happening in the United States where the Federal Reserve is attempting to do the exact opposite, deliberately running contractionary monetary policy to lower inflation back to acceptable levels.
The chasm between what the BoJ and Fed are doing is as wide as the Mariana trench is deep, resulting in US interest rates ballooning compared to those in Japan. That’s why investors are flocking to the USD and away from the JPY, especially when the US appears to be defying the economic slowdown seen elsewhere.

FX intervention may not work

Until that trend changes, or the BOJ abandons its ultra-easy policies, it’s why intervening in the FX market will be ineffectual beyond the immediate near-term. The Japanese government will be the one generating unnecessary market volatility in trying to fight fundamentals, as the Bank of Japan are doing with Japanese bond market by artificially suppressing yields. Across every tenor this week yield differentials between US and Japanese bonds blew out to the fresh highs. Is it any surprise USD/JPY rose to levels seen last year when the BOJ last intervened? Absolutely not.
But the threat of intervention has turned USD/JPY into a stalemate. The fundamental bias remains higher but few are willing to push it meaningfully so given constant warnings from Japanese officials, especially when US Treasury Secretary Janet Yellen seemed sympathetic to the idea this week.

USD/JPY: play the stalemate range

From a tactical perspective, this stalemate points to sideways range trading for the foreseeable future. USDJPY has found support recently around 145.00, so buying dips ahead of that with a stop below could work when USD/JPY approaches the bottom of the range. At the top of the range, everyone seems to think the BOJ’s line in the sand for intervention is 150, so rallies towards that figure with a stop above may suit those looking for downside.

EUR/USD: Inflation data creates make-or-break moment for common currency 28/09/2023

EUR/USD faces a stern test in the days ahead, battling divergent fundamentals, increasing risk aversion and a technical backdrop that’s as bearish as any in the G10 FX universe right now.

EUR/USD among the ugliest charts in the G10 FX universe

The daily chart doesn’t make for pleasant viewing for EUR bulls with the pair talking out support level after support level during the past few months, leaving it perilously close to fresh year-to-date lows. While RSI is oversold near-term, both the indicator and price action leave little doubt that downward momentum remains in the ascendancy. Throw in a looming ‘death cross’, with the 50-day MA about to cross the 200-day equivalent from above, and the technical picture looks troubling for bulls.
Running into the lower rung of the downtrend it’s been stuck in since July, and holding just above its year-to-date low around 1.0480, the bears will be licking their lips. With major data from the continent and US arriving in the coming days, it really does loom as a make-or-break moment for the common currency.

ECB has made data from the continent redundant near-term

While German and Eurozone consumer price inflation (CPI) top the agenda domestically, the ECB shot itself in the foot earlier this month by flagging the governing council, as a majority view, believe it’s delivered enough tightening to bring inflation back to its 2% mandate, diminishing the importance of the data on future policy decisions in the near-term. It would hammer the ECB’s already damaged credibility to backflip so quickly, meaning it’s up to the US data – specifically PCE inflation and initial jobless claims – to likely determine the fate of the EUR heading into year-end.

Up to the US data to confirm higher for longer rates argument

The fundamental scenario is not complicated with the data having to confirm or bolster the argument from the Federal Reserve that rates may have to be increased again this year and may need to be reduced at a slower pace whenever the subsequent easing cycle begins. If it does, it will be hard to bet against the USD, even with the run it’s already had. If it doesn’t, it may provide the catalyst to offer near-term support for EUR/USD.
While most attention will be on the Fed’s preferred core PCE deflator measure of inflation, don’t for get to watch the detail in the separate readings on incomes and expenditure given the implication for the inflation outlook.

Two trade ideas for EUR/USD

If the EURUSD manages to hold above 1.4080 prior to the data being released, a strong result could easily see the pair break lower, targeting support zones located around 1.0360, 1.0200 and again at 1.0090. Should a downside break occur, a stop-loss above 1.04080 or 1.0530 – depending on your downside target -- should offer protection against a sudden reversal.

Alternatively, a weak result may help EUR/USD to squeeze higher to 1.0530 or potentially 1.0640. In that scenario, a stop-loss below 1.0480 would offer protection against a resumption of the prevailing long term trend.

NZD/USD: Inflation undershoot opens the door to RBNZ rate cuts next year 17/10/2023

 

1. New Zealand inflation undershot expectation in Q3
2. NZD/USD on track for a re-test of Friday’s lows
3. Kiwibank forecasts the RBNZ rate cuts in the first half of 2024

New Zealand inflationary pressures moderated-more-than expected in the September quarter, taking the wind out of the NZD/USD’s sails following the expected election victory from the National Party-led coalition over the weekend.
New Zealand inflation strong but it could have been worse
Headline consumer price inflation (CPI) rose 1.8% in the September quarter, down two-tenths on expectation, seeing the annual rate slow to 5.6%. Non-tradable prices – typically reflecting domestic factors – rose 1.7% for the quarter, a tenth slower than the 1.8% increase reported for tradable items. Of more importance to the RBNZ interest rate outlook, StatsNZ said its underlying “trimmed mean” inflation measures rose between 5.5% to 5.7% from a year earlier.
Source: StatsNZ



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, commodity futures, or digital assets, 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 StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

NZD/USD breaks uptrend, eyes downside support 17/10/2023

Looking at NZD/USD on the hourly chart, it has broken the uptrend from the lows struck late last week, suggesting a re-test of support located at .5885 could be on the cards. Below that, .5860 would be the next downside target. Bounces towards .5930 are likely to be repelled near-term in the absence of an unlikely improvement in the macroeconomic environment.



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, commodity futures, or digital assets, 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 StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

AUD/JPY, Nikkei 225: Weaker Japanese yen adds to near-term upside risk Nov 14th 2023

 

1. The BOJ continues to run ultra-easy monetary policy settings, continuing to diverge with central banks such as the RBA
2. Widening interest rate differentials are acting to weaken the JPY against other FX pairs
3. A weaker yen is a positive for Japanese exporter earnings

BOJ continues to influence JPY, Nikkei outlook
Whether it’s any major FX pair against the yen or the Nikkei 225, the last of least resistance right now seems to be higher. With the Bank of Japan (BOJ) maintaining a dovish stance while lead indicators on inflation are already rolling over, it reinforces the view that Japan’s monetary policy divergence with the rest of the developed world is unlikely to change anytime soon, keeping the yen pressured against major FX pairs. And given the importance of the yen in helping to boost earnings from Japan’s big exporters, its weakness is acting as a powerful tailwind for the Nikkei 225.
While these factors are likely to diminish over the longer-term as past monetary policy tightening leads to slower global growth and convergence between central bank policy, that doesn’t mean FX pairs such as AUD/JPY and the Nikkei can’t continue to grind higher over the short-term.

AUD weak relative to commodity prices, rate differentials
AUD/JPY is interesting as the Reserve Bank of Australia (RBA) is one of last remaining central banks signalling a willingness to continue hiking interest rates. Data out this week is likely to keep that option live with wage growth in the September quarter expected to increase at the fastest pace since records began in 1997. With unemployment near multi-generational lows and lead labour market indicators only softening slowly, it’s too early for the RBA to call time on hikes given underlying inflationary pressures, especially for services, remain uncomfortably elevated.
As a proxy for China, AUD appears undervalued relative to commodity prices and rate differentials, suggesting not only that a lot of bad news is discounted but that it could enjoy substantial upside should sentiment towards the world’s second-largest economy improve. The risks for downside relative to upside at these levels appear to be skewed very much in favour of the latter.

Weighing up the BOJ USD/JPY intervention threat
On the JPY side of the equation, most focus is on whether the BOJ will intervene to support the currency should the government request it. While interest rate differentials between Japan and other advanced economies have narrowed a little in recent weeks, they remain extremely elevated relative to historic norms, making it difficult to justify intervening based on fundamental grounds. Unless the yen truly disconnects with rate differentials, verbal intervention appears the most likely outcome for now.

AUD/JPY grinding higher
AUD/JPY continues to grind higher on the charts, setting higher lows since the middle of the year. It’s finding buyers just above 96.00, bouncing nicely earlier this week off former resistance. That’s left it testing at 96.84, a level it has struggled to overcome dating back to early June. Should the pattern of higher lows continue, a topside break will likely see a retest of resistance above 97.55. With little visible support located above, a break of 97.55 will have traders eyeing off the 2022 highs.




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, commodity futures, or digital assets, 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 StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.
It's your world. Trade it.
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Nikkei consolidates following powerful rebound Nov 14th 2023

With the yen resuming its weakening trend, the Nikkei 225 has enjoyed a powerful rebound over the past fortnight, lifting from 30400 to within touching distance of 33000, breaking resistance at 31330 along the way. With four unsuccessful attempts to break support at 32250, there’s clearly plenty of demand around even after the latest rally. As such, it’s not surprising to see the hammer candle produced on Monday. A break of 33000 may lead to test if resistance at 33400, although it would be preferable to see a pullback towards 32250 to improve the risk-reward of the trade.




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, commodity futures, or digital assets, 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 StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

AUD/USD technical analysis (daily chart): Nov 20th 2023
The Australian dollar formed a bullish engulfing week and closed just beneath the 0.6522 resistance level, which suggests a breakout could be pending. A bullish engulfing day also formed on Friday which places support at 0.6450. The question now is how bulls can get involve. Entering around current levels could lead to a false break, so perhaps low volatility retracement within Friday’s range could appeal as it could increase the potential reward to risk ratio for an anticipated breakout, for a move towards the 66c handle near the 200-day EMA



USD/JPY technical analysis (weekly chart): Nov 20th 2023
“Tops are a process bottoms are an event” springs to mind when I look at the USD/JPY weekly chart. Whilst the trend is clearly bullish, there is a hesitancy to break above the 2022 intervention high, and the past four week has seen two shooting stars and a 2-bar reversal form (dark cloud cover). And with USD/CNH selling, hawkish headlines for BOJ resurfacing and the US dollar weakening, perhaps a move lower is the path of least resistance over the coming week for USD/JPY. A break beneath the 10-week EMA could mark such an event.




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, commodity futures, or digital assets, 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 StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

AUD/USD, USD/JPY: US rate outlook in focus ahead of RBA meeting, ISM services Dec5th 2023

While the RBA’s final rate meeting of 2023 is the headline act on the Australian data calendar, movement in AUD/USD and USD/JPY are likely to be dictated by gyrations in US yields and USD/CNH on Tuesday.

 

1. Markets and economists expect the RBA to keep Australia’s cash rate steady at 4.35% in December
2. Watch for commentary on inflation and the big shift towards rate cuts globally next year. A hawkish bias is highly likely to remain
3. US ISM services to set the tone for the US rate outlook, overriding Tokyo inflation for USD/JPY
4. USD/CNH worth watching as it led the reversal in FX and precious metals on Monday

AUD/USD endured a rollercoaster ride on Monday, opening sharply higher before reversing hard in European and North American trade, slamming it back below key downtrend resistance. While the RBA’s final rate meeting of 2023 is the headline act on the Australian data calendar, movement in pairs such as USD/JPY are likely to be dictated by gyrations in US yields and USD/CNH, the latter acting as somewhat of a lead indicator for broader moves in FX and precious metals markets to start the trading week.
RBA statement in focus for AUD/USD traders
With markets and economists unanimous in the view the cash rate will be left unchanged at 4.35% later today, the RBA statement will be the only source of potential volatility in AUD/USD around interest rate decision.
Hawkish bias likely to remain
One of the biggest surprises in November was the perception the RBA had watered down its hawkish bias signalling the risk of further rate hikes, stating, “whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks.”
The statement came across as far less definitive to that offered in October when it read, “some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe.”
At the time, markets took it as a definitive signal the RBA remained a reluctant hiker, piling into dovish bets on the belief that was the last hike in the tightening cycle. I cautioned at the time that we were dealing with a new Governor who may have a different view on how forward guidance should be communicated following a change in the cash rate. As Bullock’s subsequent public messaging has shown, those jumping the gun looking for a potential dovish pivot were very premature.
It's likely the hawkish bias provided in November will be repeated in today, although there is a risk it could revert to something similar to that communicated in October as this meeting is highly unlikely to follow an increase in the cash rate.
Inflation, international commentary key
Outside the final paragraph, most interest will be on what the RBA says regarding inflation and the international environment, especially the shift in sentiment towards the outlook for interest rates.
On inflation, it will be interesting to see whether the RBA chooses to emphasise the large undershoot in headline inflation, or the continued stickiness in underlying inflation measures, following the release of the October monthly inflation indicator last week.
It’s also a reasonable assumption the RBA will mention the rapid shift in market pricing for rate cuts next year around the world, including in the second half of the 2024 in Australia. It must be remembered the RBA’s updated forecasts for inflation to return to the top of its 2-3% target range were premised on a further interest rate hike being delivered, rather than easier policy settings. Much like what we saw from the RBNZ, this points to the risk of some form of pushback against the growing dovish tide.
Statement has been a poor guide on RBA’s actual thinking
While it’s only a sample size of two, the tone of the RBA statement has provided an accurate guide as to what the RBA is thinking under the leadership of Michele Bullock, providing a dovish message when the tone of the meeting minutes and speeches has been distinctly more hawkish. If that pattern repeats today, it may provide grounds to fade any dovish interpretation of the statement by markets.
AUD/USD rally goes hard into reverse
Looking at the technical picture for AUD/USD, the strong close last Friday seems like ancient history now with the pair slammed back through downtrend resistance following a decent reversal in the US dollar and US bond yields on Monday.
While the rejection of the break will disappoint bulls, the technical picture still looks reasonable with RSI and MACD still trending higher. AUD/USD also found decent bids on a push towards former support at .6600. With the 200-day moving average only 20 pips lower, those seeking renewed upside could use this zone as protection against a more pronounced reversal. Below, more meaningful support is located at .6520. On the topside, a successful break and hold above downtrend resistance would bring .6720 and even .6900 into play

Offshore factors to drive USD/JPY
Outside the RBA meeting, FX traders in Asia could do worse than keep a close eye on USD/CNH intraday. As focus was fixated on gold smashing to fresh record highs on Monday, its rally quietly went into reverse, acting as a lead indicator for other Asian FX names such as USD/JPY.
While updated inflation figures from Tokyo will provide some insight as to how price pressures may be evolving nationally in Japan, it’s been shown time and again that the only time we see home-grown volatility in USD/JPY is around Bank of Japan policy decisions. Not even inflation reports seem to move the dial, pointing to the likelihood that CNH and US bond yields may be more influential ahead of the key US ISM services PMI released later Tuesday.
False break for USD/JPY?
Much like the AUD/USD, USD/JPY broke a long-running trend line on Monday only to be hoovered back through it, reacting to a reversal in US yields. While the price action may be the start of a longer-lasting bullish move, much will depend on how the US services PMI prints. It is the standout data release on the US calendar, holding the power to shift expectations towards the US rate outlook.
On the charts, the USD/JPY decline stalled around 146.30 yesterday, making that the first downside level of note. There may be some bids at 146.00 but major support doesn’t kick in until below 145.00. On the topside, 147.50 and 148.40 are the levels to watch.

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