Janet Yellen's call for patience may not calm the USD/JPY for the new future. Find out what our guest blogger has to say whilst taking the charts into account.
Weaker Numbers from the US
Over the past few weeks we have seen increasingly weaker numbers out of the USA, with average hourly earnings, consumer confidence and yesterday’s dismal existing home sales all focusing the market's attention on tonight’s testimony. The importance of the word ‘patience ‘has never played such an important role as in the upcoming direction of the dollar.
Whilst US Equities closed at record highs last week, there are many signs that the investment community are starting to view these markets in a precarious position, with tepid growth forecasts, diminished earnings, near record low rates of return and the impact of the strong dollar on earnings.
Patience for Meeting in March
Last week saw several Fed members (Fisher, Plosser and Bullard) state that the removal of the phrase ‘patience’ was necessary at the next meeting in March, with a possible rate hike as early as June. Since we have to wait until March 18 before we hear definitively from the FOMC meeting, Yellen's comments later today will be closely watched for clues regarding international developments, a strong USD, jobs data and cooling inflation.
We are waiting for Yellen to state that the Fed remains data-dependent and she may hint at whether rates increase as soon as the June FOMC, which will no doubt see the dollar find a bid tone. But what will happen to the USD if she emphasizes ‘patience’ while assessing other developments? We could expect the dollar to suffer initially but this could be bullish for US stocks. However, with QE in Europe about to start we believe it will trigger more QE in Japan and any dip in USD/JPY should be viewed as a buy opportunity, our technical analysis of the currency pair supporting this view as we will now highlight.
Sell off down to the 116-117 Support Area
The USD/JPY has been trading sideways for the last 2 and half months within a contracting triangle but has not yet finished its complex wave 4 triangle. We can see from the daily chart that wave E is now in progress and expect to see a little more weakness which would tie in nicely with a Yellen comment reiterating that the fed is now awaiting other developments, considering the bad data we are consistently getting from the US. We would look for a sell off down to the 116-117 support area before looking at the price action and the very short-term momentums to show a bottom.
The last up move in 3 waves from the 16th of January lows at 115.86 failed just shy of the December 23rd highs, completing what we believe on a pure price action alone basis, the wave D of wave 4. We have since sold off to test the 61.8 per cent retracement at 118.12, and although we could call this the bottom of the wave E, we would prefer to see it trade a little lower.
Wave 5 Is under Way
The longer term trend and structure remain firmly positive and any bullish dollar move in the coming days above the 120.50-85 level will confirm that the next leg higher in a wave 5 is under way. We would then expect the multiyear December high at 121.85 to break on its way to our long-term target and previous top of a major wave IV to best meet at 124.14. A move above this will target the highs in October and November 2002 around the 125.60-80 level.
So, if you believe as we do that markets have already priced past data and expectations into whatever Janet says tonight, we will see a higher USD/JPY. It’s just a matter of time !!
Over the past few weeks we have seen increasingly weaker numbers out of the USA, with average hourly earnings, consumer confidence and yesterday’s dismal existing home sales all focusing the market's attention on tonight’s testimony. The importance of the word ‘patience ‘has never played such an important role as in the upcoming direction of the dollar.
Whilst US Equities closed at record highs last week, there are many signs that the investment community are starting to view these markets in a precarious position, with tepid growth forecasts, diminished earnings, near record low rates of return and the impact of the strong dollar on earnings.
Patience for Meeting in March
Last week saw several Fed members (Fisher, Plosser and Bullard) state that the removal of the phrase ‘patience’ was necessary at the next meeting in March, with a possible rate hike as early as June. Since we have to wait until March 18 before we hear definitively from the FOMC meeting, Yellen's comments later today will be closely watched for clues regarding international developments, a strong USD, jobs data and cooling inflation.
We are waiting for Yellen to state that the Fed remains data-dependent and she may hint at whether rates increase as soon as the June FOMC, which will no doubt see the dollar find a bid tone. But what will happen to the USD if she emphasizes ‘patience’ while assessing other developments? We could expect the dollar to suffer initially but this could be bullish for US stocks. However, with QE in Europe about to start we believe it will trigger more QE in Japan and any dip in USD/JPY should be viewed as a buy opportunity, our technical analysis of the currency pair supporting this view as we will now highlight.
Sell off down to the 116-117 Support Area
The USD/JPY has been trading sideways for the last 2 and half months within a contracting triangle but has not yet finished its complex wave 4 triangle. We can see from the daily chart that wave E is now in progress and expect to see a little more weakness which would tie in nicely with a Yellen comment reiterating that the fed is now awaiting other developments, considering the bad data we are consistently getting from the US. We would look for a sell off down to the 116-117 support area before looking at the price action and the very short-term momentums to show a bottom.
The last up move in 3 waves from the 16th of January lows at 115.86 failed just shy of the December 23rd highs, completing what we believe on a pure price action alone basis, the wave D of wave 4. We have since sold off to test the 61.8 per cent retracement at 118.12, and although we could call this the bottom of the wave E, we would prefer to see it trade a little lower.
Wave 5 Is under Way
The longer term trend and structure remain firmly positive and any bullish dollar move in the coming days above the 120.50-85 level will confirm that the next leg higher in a wave 5 is under way. We would then expect the multiyear December high at 121.85 to break on its way to our long-term target and previous top of a major wave IV to best meet at 124.14. A move above this will target the highs in October and November 2002 around the 125.60-80 level.
So, if you believe as we do that markets have already priced past data and expectations into whatever Janet says tonight, we will see a higher USD/JPY. It’s just a matter of time !!
This article is written by Matthew Clark who is the owner of
Global Forex Pros.
ABOUT THE AUTHOR: Matthew has been a trader for more than 20 years running FX desks at major banks and retail brokers. He recently started Global Forex Pros as a service for brokers to offer their clients, teaching them to trade in real time as professional traders learn at banks and institutions, giving the retail trader the confidence to trade and increasing volumes for the broker. Matthew has been a trader for more than 20 years running FX desks at major banks and retail brokers. He recently started Global Forex Pros as a service for brokers to offer their clients, teaching them to trade in real-time as professional traders learn at banks and institutions, giving the retail trader the confidence to trade and increasing volumes for the broker.
Interactive Brokers Expands Offerings with Daily Options on French Stocks
Network, Learn, Grow | FMAS:24
Network, Learn, Grow | FMAS:24
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Get ready to mark your calendars for FMAS:24, returning this May! Take a quick glimpse of what awaits at the Sandton Convention Centre in Sandton, South Africa from May 20-22, 2024.
Don't miss out on this 5-second invite packed with energy and urgency!
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Here's a sneak peek into the FMAS:24 vibrant atmosphere! Join us at Africa’s premium financial event for a transformative experience that combines the best of finance and technology.
From May 20-22, 2024, the Sandton Convention Centre in Sandton, South Africa, will be the hub for over 3,500 attendees to engage in unparalleled networking opportunities, learn from over 150 industry-leading speakers, and explore innovations from 120+ exhibitors.
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Join 3500+ Attendees at FMAS:24 | Africa's Premium Financial Event
Join 3500+ Attendees at FMAS:24 | Africa's Premium Financial Event
Looking to expand your network in #Africa? Join 3500+ attendees at FMAS:24, where online trading, fintech, payments, and crypto meet! Connect with industry leaders and innovators for an unmatched networking experience.
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Join 3500+ Attendees at FMAS:24 - Africa's Premium Financial Event
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Where the Prop Trading Industry Goes from Here | Finance Magnates Podcast
Where the Prop Trading Industry Goes from Here | Finance Magnates Podcast
Explore the tumultuous world of prop trading in this Finance Magnates podcast episode, featuring insights from Head of Axi Select, Greg Rubin.
We're discussing the challenges and shifts caused by MetaQuotes' pivotal decisions affecting MT4 and MT5 users, and how Axi Select offers a unique, realistic path to professional trading, steering clear of traditional prop firm pitfalls.
Tune in for expert analysis on the future of trading and innovative funding models.
The Axi Select programme is only available to clients of AxiTrader Limited. CFDs carry a high risk of investment loss. In our dealings with you, we will act as a principal counterparty to all of your positions. This content is not available for AU, NZ, EU and UK residents. For more information, refer to our Terms of Service. Standard trading fees apply.
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Explore the tumultuous world of prop trading in this Finance Magnates podcast episode, featuring insights from Head of Axi Select, Greg Rubin.
We're discussing the challenges and shifts caused by MetaQuotes' pivotal decisions affecting MT4 and MT5 users, and how Axi Select offers a unique, realistic path to professional trading, steering clear of traditional prop firm pitfalls.
Tune in for expert analysis on the future of trading and innovative funding models.
The Axi Select programme is only available to clients of AxiTrader Limited. CFDs carry a high risk of investment loss. In our dealings with you, we will act as a principal counterparty to all of your positions. This content is not available for AU, NZ, EU and UK residents. For more information, refer to our Terms of Service. Standard trading fees apply.
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