USDJPY Gains Still Expected Even With Japan Rate Decisions

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USDJPY Gains Still Expected Even With Japan Rate Decisions

By Adam Teen | Tuesday, November 1st, 2020

The USD showed weaknesses through last Friday’s New York trading session, but again recouped those losses later towards the end of Monday’s trading. Last week’s temporary dollar slump came as a result of political sentiments affecting the green buck.

The USDJPY had earlier-on set a three month high (105.537) on Friday before retracting a shock sell-off coming from fresh news that the FBI would open new rounds of investigation on US presidential candidate Hillary Clinton.

Weaker consumer sentiment results did not make it any easier for the dollar. That movement still left the USDJPY trading within a bullish channel spanning over 4 weeks.

Chart: USDJPY firm in a bullish channel

The biggest focus of the morning is the Bank of Japan, expected to give a monetary policy statement, a detailed outlook of the Japanese economy and finally, a policy rate announcement. The Bank of Japan is currently hell-bent on keeping its inflation targets at 2% well into the 2020/2020 financial years.

It is however clear through recent releases that simply carrying out monetary expansion has not been effective on its own in the efforts to boost the economy and meet the inflation targets. Many other tools have to be used and that is why speculation is rife that the policy rate will remain unchanged at negative 0.1%.

Some structural reforms in the economy are needed more than just altering the monetary policy.

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Bank Of Japan Policy Announcements in focus

The USDJPY has been drifting higher for most of October. Currently, the USDJPY still holds well within a multiweek bullish channel, with the Friday’s high being the closest it came to penetrating to higher levels.

This makes us maintain our bullish stance on the USDJPY.

In today’s news release, a second attempt towards the 105.53 high is very possible, albeit after a slight retracement before fresh longs push the market. A break of the 105.53 over the rest of the week also means an exposure towards higher range channels even though the price will greatly be limited below 106.00 due to overbuying.

Trade Idea for the USDJPY

With the bullish bias, an attempt was made on the channel resistance on Friday. If the rates remain unchanged, the bullish bias will remain unchanged unless the 103.20 support still holds.

Traders can look towards buying the USDJPY at a slightly lower level than it currently is (104.797) and having Friday’s high as our first target over the rest of the day’s trading.

Suggested entry levels include 104.500 and 104.00, both which are at reasonable levels at the bottom of the rising channel, but also previous resistance levels that turned into support in previous weeks.

*Please note that presented trade ideas are for entertainment only. They do not represent financial advice.

USD/JPY Chart Resistance Still in Focus After BoJ as Yen Eyes Fed

USD/JPY, Bank of Japan Talking Points

  • Bank of Japan maintains monetary policy tools unchanged, JPY gains
  • Japanese Yen may see higher volatility on Fed, US-China trade talks
  • USD/JPY bearish technical cues conflict with bullish sentiment ones

Trade all the major global economic data live as it populates in the economic calendar and follow the live coverage for key events listed in the DailyFX Webinars . We’d love to have you along.

The Japanese Yen saw cautious gains even though the Bank of Japan left key monetary policy setting tools unchanged in July. The policy balance rate and 10-year government bond yield target held at -0.10% and 0.00% respectively. Meanwhile, the central bank maintained its 80 trillion Yen target for annual JGB purchases.

There were a couple of downgrades in their economic forecasts which might have resulted in JPY strength given that there was no shift in their forward guidance. The central bank lowered fiscal 2020 core CPI to 1.0% from 1.1% prior. Their calculations for inflation accounted for the anticipated impact of a sales tax hike later this year. For the same period, real GDP estimates were also downgraded from 0.8% to 0.7%.

While the Japanese Yen may be quiet for the time being, more volatility could be in store for the currency given the action-packed week ahead. The anti-risk JPY could see buying pressure on key events such as the Federal Reserve rate decision on Wednesday where the central bank is anticipated to cut rates for the first time since 2008. The Yen may also gain on US-China trade talks should investors unwind exposure from risky equities into safer Treasuries.

Regarding the former, there appears to be a decreasing propensity for the central bank to surprise more dovish before triggering a panic selloff in equities which may boost JPY. They have mentioned spillover concerns from a fragile global growth outlook. There is also the risk that those anticipating a 50 basis point rate cut will be disappointed, with Fed funds futures placing those odds at about 20 percent.

Japanese Yen Technical Analysis

Against the US Dollar, the Japanese Yen is once again finding itself retesting critical resistance as it hovers under 109.02. In the big picture, this is as a result of consolidation that followed the push above the descending trend line from April in late June. USD/JPY’s oscillation resulted in channel floor being established between 106.78 to 107.21. If resistance holds ahead, this might result in another test of that floor.

USD/JPY Daily Chart

USD/JPY Bullish Contrarian Trading Bias

IG Client Sentiment meanwhile is offering a warning sign that the USD/JPY near-term uptrend could extend . Retail trader data shows that about 59.1% of participants are net-long, 2.2% and 15.8% lower compared to yesterday and the previous week respectively. We typically take a contrarian view to crowd sentiment.

To learn more about how to use sentiment in your own trading strategy , join me each week on Wednesday’s at 00:00 GMT as I uncover what IG Client Sentiment has to say about the prevailing trends in financial markets and follow me on Twitter here @ddubrovskyFX for timely updates!

USD/JPY IG Client Sentiment

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— Written by Daniel Dubrovsky, Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

When is the BOJ rate decision and how could it affect USD/JPY?

The Bank of Japan (BOJ) will release its latest monetary policy meeting decision together with the fourth quarter (Q4) Outlook Report approximately at 3:00 GMT on Tuesday. The Japanese central bank is widely expected not to announce any changes in its key policy actions by holding short-term interest rate target at -0.1% and keep directing 10-year Japanese Government Bond (JGB) yields toward zero. Even so, the quarterly economic outlook increases the importance of the event.

Additionally, the BOJ Governor Haruhiko Kuroda speaks at the press conference somewhere near 06:00 GMT and will be closely observed to confirm the Japanese central bank’s future bearish bias.

Ahead of the event, Westpac said,

The Bank of Japan announces the outcome of its meeting today, with a steady hand very much expected on the key policy settings: targeting around 0% on the 10-year JGB yield, -0.1% on banks’ excess reserves and the JPY80trn annual JGB purchase target which is rarely reached due to the priority given to ‘yield curve control.’ This meeting produces quarterly forecasts. The BoJ became a little more dovish in Q4 2020, saying it will, ‘pay close attention to the possibility that the momentum toward achieving the price stability target will be lost.’

TD Securities follows the suit while saying,

We expect no changes from the BOJ. This meeting should pass with little fanfare. This meeting will feature an update to projections but with the major central banks comfortably sidelined, it will hardly matter as the BOJ can remain out of the limelight for some time.

How could it affect the USD/JPY?

Although the BOJ is likely to refrain from any surprises, the recently downbeat data from Japan may be notified in the central bank’s outlook report. Additionally, Governor Haruhiko Kuroda is known for his dovish outlook and recently said that the bank won’t hesitate to take additional easing steps if risks grow. With that, the USD/JPY may extend its gradual rise towards the May 2020 top near 110.70.

On the contrary, surprise optimism in the tone of Governor Kuroda might drag the USD/JPY pair below 110.00 for the first time in three days. However, December month high and 10-day SMA could question sellers around 109.85/80 during the fresh declines.

Key Notes

USD/JPY keeps gains above 110.00 ahead of BOJ

About BoJ Rate Decision

BoJ Interest Rate Decision is announced by the Bank of Japan. Generally, if the BoJ is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive, or bullish, for the JPY. Likewise, if the BoJ has a dovish view on the Japanese economy and keeps the ongoing interest rate, or cuts the interest rate it is negative, or bearish.

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.

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