Talking Points:
- USD/JPY trading higher, but heading into key resistance levels
- US GDP revisions, “Fed-speak” and Japan CPI is on tap looking ahead
- Fed speak could push US Dollar higher on hawkish rhetoric
The USD/JPY is edging higher today after stocks rose during the Asian session, but is approaching key resistance levels heading into US trading hours.
Looking ahead, US 2Q GDP revisions and Japan’s CPI data is in focus, and “Fed-speak” could keep us occupied in between.
Against this backdrop we will form our outlook and look to find short term trading opportunities using different tools such as the Grid Sight Index (GSI) indicator.
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Revision for US 2Q GDP numbers are set to hit the wires 12:30 GMT. Expectations are for a positive revision to 1.3% from 1.1% in the annualized number, after the initial release late July came well below expectations for significant US Dollar selling pressure. In fact, the US Dollar failed to trade at similar levels since, despite leveling between 11,850 to the 12,000 level. Taking this into consideration might suggest that a higher than expected revision might prove to be market moving.
“Fed-speak” is also in focus today, with scheduled remarks by Lockhart, Powell, Kashkari and Yellen. The US Dollar declined following the FOMC rate decision, as it seems the market put more weight on the longer term rates outlook. The Fed lowered their projected rates path but indicated a hike is likely in December.
With that said, December hike probabilities still sit around 55% at the time of writing (according to Fed fund futures), implying that if “Fed-speak” continues to point to December, there is room for US Dollar strength in the short term on rising hike bets.
Japan August CPI data is on tap into the following Asian session. The headline year-on-year number is expected to decline to -0.5% versus the prior -0.4%. With inflation very far from the BOJ target of above 2.0%, it will be interesting to see how the market reacts to either a beat or miss to expectations, with the "central banks skepticism" narrative in focus.
USD/JPY Technical Levels:
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We use volatility measures as a way to better fit our strategy to market conditions. The USD/JPY has seen implied volatility measures drop significantly after the Fed and BOJ were out of the way, and 20-day ATR reading suggest reduced volatility as well.
In turn, this may imply that the longer term tech levels might be likely to hold in the near term.
USD/JPY 30-Min Chart: September 29, 2016
(Click to Enlarge)
The USD/JPY is currently at potential support around the 101.40 area.
Other support levels to watch in the short term might be 101.20, 101.00, 100.50 and the big 100 level.
Levels of resistance may be found at 101.80, 102.00 102.40 and 102.60.
In the short term, GSI is showing similar momentum pattern continued to the downside more often than not.
The GSI indicator above calculates the distribution of past event outcomes given certain momentum patterns. By matching events in the past, GSI describes how often the price moved in a certain direction.
You can learn more about the GSI here.
We generally want to see GSI with the historical patterns significantly shifted in one direction, which alongside a pre-determined bias and other technical tools could provide a solid trading idea that offer a proper way to define risk.
--- Written by Oded Shimoni, Junior Currency Analyst for DailyFX.com
To contact Oded Shimoni, e-mail oshimoni@dailyfx.com
Follow him on Twitter at @OdedShimoni
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