Talking Points:
- USD/JPY trading above the 100 level as participants brace for Yellen on Friday
- Japan Manufacturing PMI and Kuroda are ahead, but volatility is in question
- A number of fundamental and technical factors take center stage at the moment
The USD/JPY is trading above 100 at the time of writing, apparently finding some support against a backdrop of rising short term US treasury yields.
Indeed, a number of fundamental and technical factors are playing out for the pair at the moment, with further stimulus by the BOJ hinted for September, intervention risk and reduced market depth in focus, as the pair trades near the all-important 100 technical level.
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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Looking ahead, the August Nikkei Japan PMI Manufacturing figures are set to hit the wires and expectations are for a slight uptick to 49.5 from the prior 49.3.
Kuroda speaks at BOJ’s Fintech Conference as well, and could provide information about potential stimulus in September, but this might be the less probable outcome given the venue.
With that said, the speech does bring possible BOJ stimulus speculation to the spotlight, emphasizing the many themes in play for the pair.
Clues continue to line-up for the Bank of Japan meeting in September to signal a bold move on the easing front, perhaps weighing on the Yen.
In contrast, Fed officials seem to be leaning more to the hawkish side lately, and with the much anticipated Yellen speech this Friday, the US Dollar might see strength as participants try to anticipate the Fed’s Chair potential rhetoric.
The Yen is trading in proximity of the 100 level versus the US Dollar, which is not only technically important, but also raises speculation on FX intervention by Japanese authorities, further making participants perhaps slightly worry on additional short side Yen.
Indeed, given the fact that participation is low at the moment, it seems that further Yen strength might need to see a real turn lower in risk sentiment (and potentially one that is not a consequence of higher US yields) for the Yen to gain significant traction.
USD/JPY Technical Levels:
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We use volatility measures as a way to better fit our strategy to market conditions. The Yen is expected to be the most volatile currency versus the US Dollar (based on 1-week and 1-month implied volatility measures), perhaps as the market starts to prepare for the BOJ September meeting.
With that said, at this moment in time a catalyst appears lacking. In turn, this may suggest that range bound trading plays might be appropriate in the short term.
USD/JPY 30-Min Chart (With the GSI Indicator): August 22, 2016
(Click to Enlarge)
The USD/JPY is approaching potential support above the 100.50 level at the time of writing, with GSI calculating slightly higher percentage of past movement to the downside in the short term.
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, and download the Trade Station version here.
Further levels of support might be the big 100 level, followed by the area below 99.50, 99 and 98.50.
Possible levels of resistance on a move higher may be the zone below 101, 101.50, 102 and the area above 102.345.
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.
We studied over 43 million real trades and found that traders who successfully define risk were three times more likely to turn a profit.
Read more on the “Traits of Successful Traders” research.
Meanwhile, the DailyFX Speculative Sentiment Index (SSI) is showing that about 80.0% of FXCM’s traders are long the USD/JPY at the time of writing. This is an extreme SSI reading, only slightly below the July extreme- levels not seen since 2012.
You can find more info about the DailyFX SSI indicator here
--- 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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