Forex Daily Commentary – Yen Gains on News of the Fiscal Package Size

July 26, 2016

This article is originally referred from IronFX Daily Commentary

The Big Picture

• Yen gains on news of the fiscal package size The Japanese yen came under renewed buying interest during the Asian morning today following reports concerning the size of the government’s planned fiscal stimulus package. Even though the reports suggested that the government will double the size of its package to 6 trillion yen from 3 trillion indicated in an earlier draft, the news may have disappointed investors who expected a bigger set of measures. Indeed, market chatter prior to this announcement suggested that many expected a 10-20 trillion yen package. Moving forward, JPY traders will likely shift their attention onto the Bank of Japan meeting on Friday. Considering that much of the speculation surrounding BoJ easing at this meeting has already been priced in, evident by the 11th – 21st of July rally in USD/JPY, we believe that the yen could extend today’s gains, at least for a while. The currency’s direction will depend on the quantity and quality of any stimulus measures the BoJ decides to introduce. Given the already elevated easing expectations, BoJ officials would need to deliver an aggressive set of measures in order for the yen to weaken materially, in our view.

• Today’s highlights: During the European morning, we have a very light calendar with no major events or indicators due to be released.

• The only noteworthy data we get during the day are from the US. The preliminary Markit services PMI for July is expected to have risen, which could indicate that the US economy remained largely unaffected by Britain’s referendum outcome. New home sales for June are expected to have increased, while the SnP/Case-Shiller house price index for May is expected to show an acceleration in home price inflation. Following the positive surprise in existing home sales as well as the improvement in both housing starts and building permits for June, encouraging new home sales could add to evidence that the US housing market remains on a solid footing. The Conference Board consumer confidence index for July is also due out and the forecast is for a decline. Net-net, given that most of these indicators are expected to show improvement, the dollar could gain at these releases.

• We have no speakers scheduled on Tuesday’s agenda.

The Market

EUR/USD rebounds and hits resistance at 1.1020

EURUSD rebounds and hits resistance at 1.1020

• EUR/USD traded higher yesterday, and during the early European morning Tuesday, it hit resistance at 1.1020 (R1). The price structure on the 4-hour chart still suggests a short-term downtrend and therefore, I would expect the bears to seize control again at some point. However, for now there is the likelihood for the current rebound to continue for a while. This is also supported by our short-term momentum studies. The RSI edged north and just poked its nose above its 50 line, while the MACD, although negative, has bottomed and crossed above its trigger line. A break back above 1.1020 (R1) is likely to confirm the case and perhaps challenge our next resistance of 1.1050 (R2). As for the bigger picture, as long as the pair is trading within the sideways range between 1.0800 and 1.1500, I would maintain my flat stance as far as the longer-term trend is concerned.

• Support: 1.0980 (S1), 1.0950 (S2), 1.0900 (S3)

• Resistance: 1.1020 (R1), 1.1050 (R2), 1.1090 (R3)

EUR/GBP rebounds from 0.8345

EURGBP rebounds from 0.8345

• EUR/GBP traded somewhat higher on Monday after it hit support near the 0.8345 (S1) level. However, the rate remains within the sideways range it has been trading since the 15th of July, between 0.8300 (S2) and 0.8430 (R1). Therefore, I would hold a flat stance for now with regards to the short-term outlook. A break above 0.8430 (R1) is needed to turn the picture positive, something that may initially aim for the next resistance of 0.8470 (R2). A break above 0.8470 (R2) though is the move that is possible to carry larger bullish implications as it could open the way for the 0.8580 (R3) zone, marked by the peak of the 11th of July. Our short-term oscillators detect positive momentum and support somewhat that the pair is likely to exit the range to the upside. The RSI emerged above its 50 line, while the MACD, already above its trigger line, has turned positive. What is more, both the indicators lie above their respective upside support lines. Zooming out to the daily chart, I still see a longer-term uptrend. A break above 0.8430 (R1) may confirm that the 6th – 14th of July slide was just a corrective move and that the broader trend is back in force.

• Support: 0.8345 (S1), 0.8300 (S2), 0.8260 (S3)

• Resistance: 0.8430 (R1), 0.8470 (R2), 0.8580 (R3)

USD/JPY falls below 106.65

USDJPY falls below 106.65

• USD/JPY tumbled during the Asian morning Tuesday, falling below the key support (now turned into resistance) barrier of 105.65 (R1). The decline was stopped, at least for now, near our next obstacle of 104.65 (S1). In my view, yesterday’s slide confirmed the negative divergence between our short-term oscillators and the price action, and may have signaled a short-term trend reversal. A decisive dip below 104.65 (S1) could have more bearish implications and is possible to set the stage for extensions towards our next support hurdle of 103.85 (S2). Our short-term oscillators detect downside speed and corroborate my view for further declines. The RSI fell below its 50 line and now looks to be headed towards 30, while the MACD, already below its trigger line, has just turned negative. As for the bigger picture, the longer-term trend still looks negative. The aforementioned short-term trend reversal is an early sign that the 8th – 21st of July recovery was just a corrective phase and that the longer-term downtrend may started gaining back momentum.

• Support: 104.65 (S1), 103.85 (S2), 103.30 (S3)

• Resistance: 105.65 (R1), 106.60 (R2), 107.30 (R3)

Gold trades in a consolidative manner

Gold trades in a consolidative manner

• Gold traded in a consolidative manner on Monday, staying between the support of 1313 (S1) and the resistance of 1323 (R1). Given the inability of the bears to overcome the 1313 (S1) and that the price is trading very close to the upside support line taken from back at the low of the 30th of May, I would switch my stance to flat with regards to the short-term outlook. A break back above 1323 (R1) is likely to be an early sign that the prevailing short-term downtrend is over and is possible to open the way for the 1340 (R2) resistance territory. Our short-term oscillators stand below their equilibrium levels, but they both point sideways, corroborating my choice to stand pat for now. Switching to the daily chart, I see that the metal is trading above the uptrend line taken from back at the low of the 17th of December. In my view, this keeps the longer-term picture cautiously positive. I would treat the shot-term downtrend, or any future extensions that stay limited above that line, as a corrective phase of that longer-term uptrend.

• Support: 1313 (S1), 1305 (S2), 1300 (S3)

• Resistance: 1323 (R1), 1340 (R2), 1348 (R3)

WTI slides and breaks below 43.60

WTI slides and breaks below 43.60

• WTI continued trading lower yesterday and managed to fall below the support (now turned into resistance) barrier of 43.60 (R1). The price structure on the 4-hour chart still suggests a short-term downtrend and as a result, I would expect the price to target the 42.50 (S1) zone, where a decisive dip could set the stage towards the next support area of 41.30 (S2). Nevertheless, for now our oscillators give evidence that a corrective bounce could be on the cards before the next negative leg. The RSI has bottomed within its oversold territory and now looks ready to move above 30, while the MACD, although below both its zero and trigger lines, shows signs of bottoming as well. As for the broader trend, the break below the uptrend line taken from the low of the 11th of February brings into question the uptrend started back in January. The fact that the price closed below 46.00 on the 7th of July may have brought a medium-term trend reversal.

• Support: 42.50 (S1), 41.30 (S2), 40.00 (S3)

• Resistance: 43.60 (R1), 44.50 (R2), 45.20 (R3)

Original Source: IronFX Daily Commentary

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