Sive Morten
Special Consultant to the FPA
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- 18,673
Fundamentals
Today, in second weekly report we will take a look at JPY. Global economic background we've discussed yesterday, in report dedicated to EUR. Japan has no meaningful specific fundamental inputs right now that could significantly impact on the value of JPY. The one thing we could mention here is recent statement of Mr. Kuroda on situation in Japanese economy.
As Reuters reports Bank of Japan Governor Haruhiko Kuroda said on Saturday that inflation had recently been weak despite a steady economic expansion, signaling the bank’s readiness to maintain its massive stimulus program. Kuroda also voiced concern over the damage escalating trade frictions could inflict on global growth, but repeated his view that the world’s third-largest economy was on track for a moderate expansion.
“While there are some uncertainties on the global outlook, such as the impact of recent protectionist trade policies, they have yet to affect Japan’s economy,” Kuroda told reporters after a Group of Seven finance leaders’ gathering.
“Inflation, on the other hand, has recently shown some weaknesses,” Kuroda said, an acknowledgement that inflation remains slow in picking up despite the BOJ’s heavy money printing.
He blamed the weakness on temporary factors, such as past yen gains that slashed import costs, and stressed that the economy was sustaining momentum to meet the BOJ’s price goal.
It was the first time Kuroda has commented on recent inflation data, which underscored a dominant market view the BOJ’s price forecasts were too optimistic.
Japan’s core consumer prices rose 0.7 percent in April from a year earlier, slowing for the second straight month and staying distant from the BOJ’s 2 percent target.
Core consumer inflation for Tokyo, a leading indicator of nationwide trends, hit 0.5 percent in May, a sign the economy was lacking momentum to drive up prices to the BOJ’s goal.
CFTC data shows that overall speculative position stands extremely balanced - neither short nor long. Closing of extreme short position was rather fast, but within last 2-3 months investors mostly stand indecision.
That's being said - as fundamental as sentiment background mostly stands the same, brings nothing new and keeps yen mostly dependent from USD strength or weakness, we again have to use technical analysis to estimate possible direction.
Technicals
Monthly
Monthly picture barely has changed since our recent report.
On this time frame we have a pattern of incredible scale, huge reverse H&S is forming here. As it usually happens - left side of H&S is a huge butterfly "Buy". Upside rally from the bottom of the right arm in 2015 was rather fast. Now yen stands in retracement of this upside action that already has started.
Upside targets stand rather far - it could be as AB-CD pattern, based on H&S itself, or butterfly "Sell" pattern, based on right arm. All these targets stand above 130 level and not very interesting for us now.
What is really interesting is when and how market will turn up and when. In fact there are more than single scenario. I would say, that we have at least three of them. First is - immediate upside action and triangle breakout, turning to butterfly pattern. Second - downside action to the lower border of triangle first. Finally, third scenario is triangle downside breakout by large AB=CD with butterfly "Buy" shape of CD leg. In this case potential reversal point will stand around 93.50-94. area...
Our task is find out which scenario will happen as soon as possible.
Weekly
Weekly time frame lets us to estimate very important support area, where major upside reversal could start.
So, 102.80 is a strong support cluster on weekly chart. First is, this is lower border of monthly triangle. Second - we have large AB-CD pattern. Once it will be completed - we will get "222" Buy pattern here.
Finally, CD leg of this pattern could take a shape of 3-Drive "Buy", as JPY keeps drive-to-drive extensions of this pattern very sharp.
So, 103 area, roughly, is the major one to keep an eye on. If, yen will break it down, this will significantly increase chances on further drop, at least to 93-94 level, according to monthly analysis and "222' here could turn to butterfly.
Last time our major concern was about downside action, there was a risk that no downside reversal could happen. And, as you understand, the reversal is a corner stone for our setup here. Now we've got bearish engulfing pattern right at top of harmonic swing retracement, which is a good sign:
Daily
Trend is bearish here. Pattern that is forming right now has special meaning for us. This is H&S. Taking in consideration weekly chart - we're not as interested in its short-term target, as fact of reversal per se. It means that on coming week we need to keep an eye on its validity. Right arm should be completed and yen should turn down to keep valid our scenario. If H&S will fail here, then weekly scenario could be put under question, since upside action could continue:
Intraday
So, upside action, as we've suggested from solid daily support area and Oversold. Now, on coming week we should keep an eye on 109.95-110.15 area. This strong resistance cluster of Agreement resistance around major 5/8 Fib level and WPR1. If market indeed follows our trading plan - it should turn down. As a result second part of daily H&S pattern will take the shape of large '222" sell pattern:
Conclusion:
Long-term JPY chart has so big pattern which makes it to be interesting only from theoretical point of view. Now we're mostly focused on process of upside reversal and where it could happen. Currently we have a suggestion that it could happen around 103 area.
On a shorter term charts, our attention is focused on daily H&S pattern and its right arm in particular. A lot of things depends on this pattern. If yen will fail to turn down and form H&S - it could lead to crush of weekly scenario and solid upside continuation. While validity of H&S pattern will give us not only clear pattern to trade but also supports weekly plan with potential 103 target.
The technical portion of Sive's analysis owes a great deal to Joe DiNapoli's methods, and uses a number of Joe's proprietary indicators. Please note that Sive's analysis is his own view of the market and is not endorsed by Joe DiNapoli or any related companies.
Today, in second weekly report we will take a look at JPY. Global economic background we've discussed yesterday, in report dedicated to EUR. Japan has no meaningful specific fundamental inputs right now that could significantly impact on the value of JPY. The one thing we could mention here is recent statement of Mr. Kuroda on situation in Japanese economy.
As Reuters reports Bank of Japan Governor Haruhiko Kuroda said on Saturday that inflation had recently been weak despite a steady economic expansion, signaling the bank’s readiness to maintain its massive stimulus program. Kuroda also voiced concern over the damage escalating trade frictions could inflict on global growth, but repeated his view that the world’s third-largest economy was on track for a moderate expansion.
“While there are some uncertainties on the global outlook, such as the impact of recent protectionist trade policies, they have yet to affect Japan’s economy,” Kuroda told reporters after a Group of Seven finance leaders’ gathering.
“Inflation, on the other hand, has recently shown some weaknesses,” Kuroda said, an acknowledgement that inflation remains slow in picking up despite the BOJ’s heavy money printing.
He blamed the weakness on temporary factors, such as past yen gains that slashed import costs, and stressed that the economy was sustaining momentum to meet the BOJ’s price goal.
It was the first time Kuroda has commented on recent inflation data, which underscored a dominant market view the BOJ’s price forecasts were too optimistic.
Japan’s core consumer prices rose 0.7 percent in April from a year earlier, slowing for the second straight month and staying distant from the BOJ’s 2 percent target.
Core consumer inflation for Tokyo, a leading indicator of nationwide trends, hit 0.5 percent in May, a sign the economy was lacking momentum to drive up prices to the BOJ’s goal.
CFTC data shows that overall speculative position stands extremely balanced - neither short nor long. Closing of extreme short position was rather fast, but within last 2-3 months investors mostly stand indecision.
That's being said - as fundamental as sentiment background mostly stands the same, brings nothing new and keeps yen mostly dependent from USD strength or weakness, we again have to use technical analysis to estimate possible direction.
Technicals
Monthly
Monthly picture barely has changed since our recent report.
On this time frame we have a pattern of incredible scale, huge reverse H&S is forming here. As it usually happens - left side of H&S is a huge butterfly "Buy". Upside rally from the bottom of the right arm in 2015 was rather fast. Now yen stands in retracement of this upside action that already has started.
Upside targets stand rather far - it could be as AB-CD pattern, based on H&S itself, or butterfly "Sell" pattern, based on right arm. All these targets stand above 130 level and not very interesting for us now.
What is really interesting is when and how market will turn up and when. In fact there are more than single scenario. I would say, that we have at least three of them. First is - immediate upside action and triangle breakout, turning to butterfly pattern. Second - downside action to the lower border of triangle first. Finally, third scenario is triangle downside breakout by large AB=CD with butterfly "Buy" shape of CD leg. In this case potential reversal point will stand around 93.50-94. area...
Our task is find out which scenario will happen as soon as possible.
Weekly
Weekly time frame lets us to estimate very important support area, where major upside reversal could start.
So, 102.80 is a strong support cluster on weekly chart. First is, this is lower border of monthly triangle. Second - we have large AB-CD pattern. Once it will be completed - we will get "222" Buy pattern here.
Finally, CD leg of this pattern could take a shape of 3-Drive "Buy", as JPY keeps drive-to-drive extensions of this pattern very sharp.
So, 103 area, roughly, is the major one to keep an eye on. If, yen will break it down, this will significantly increase chances on further drop, at least to 93-94 level, according to monthly analysis and "222' here could turn to butterfly.
Last time our major concern was about downside action, there was a risk that no downside reversal could happen. And, as you understand, the reversal is a corner stone for our setup here. Now we've got bearish engulfing pattern right at top of harmonic swing retracement, which is a good sign:
Daily
Trend is bearish here. Pattern that is forming right now has special meaning for us. This is H&S. Taking in consideration weekly chart - we're not as interested in its short-term target, as fact of reversal per se. It means that on coming week we need to keep an eye on its validity. Right arm should be completed and yen should turn down to keep valid our scenario. If H&S will fail here, then weekly scenario could be put under question, since upside action could continue:
Intraday
So, upside action, as we've suggested from solid daily support area and Oversold. Now, on coming week we should keep an eye on 109.95-110.15 area. This strong resistance cluster of Agreement resistance around major 5/8 Fib level and WPR1. If market indeed follows our trading plan - it should turn down. As a result second part of daily H&S pattern will take the shape of large '222" sell pattern:
Conclusion:
Long-term JPY chart has so big pattern which makes it to be interesting only from theoretical point of view. Now we're mostly focused on process of upside reversal and where it could happen. Currently we have a suggestion that it could happen around 103 area.
On a shorter term charts, our attention is focused on daily H&S pattern and its right arm in particular. A lot of things depends on this pattern. If yen will fail to turn down and form H&S - it could lead to crush of weekly scenario and solid upside continuation. While validity of H&S pattern will give us not only clear pattern to trade but also supports weekly plan with potential 103 target.
The technical portion of Sive's analysis owes a great deal to Joe DiNapoli's methods, and uses a number of Joe's proprietary indicators. Please note that Sive's analysis is his own view of the market and is not endorsed by Joe DiNapoli or any related companies.
