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NZDJPY

The BoJ Letdown

Since Monday, the NZDJPY has roared nearly 300 points as speculation leading into the Bank of Japans long-anticipated rate hike was softened in favor of the most probable scenario.  Prior to this week, other issues had determined the price action in this pair namely economics and commodities.  A quick run through of New Zealands economic offerings will quickly lead a trader to suggest a short of the countrys unit as issues like a current account that is 9.3% of its total GDP, hang heavily over its head.  However, recent indicators have been promising like the manufacturing PMI and strong retail sales.   As initial hesitations over economics were loosened, traders saw the good buying opportunity in the oversold pair and realistic expectations of how the BoJ would move started to disseminate, the kiwi begin to find its bid.  Pushing the pair to the top of todays mover list specifically though was the actual policy announcement from Governor Fukui and his policy board.  As was largely expected, the central bank finally shifted away from the 6-year ZIRP in favor of a 25bp overnight lending rate.  A good start to taking out the favored short in carry trades, the quarter point hike, on the other hand, was expected to stick around for a while as Fukui said it was his plan to lift borrowing rates gradually so as not to curb the longest stretch of growth in recent decades.  So, while 25 bps have been shaved off of the NZDJPY, it was still a handy 7% annual return; and traders were quick to recognize this.

Technically Speaking

Much like its US counterpart, the NZDJPY climbed significantly through trading to close just points above a long-term moving average. Currently standing at 72.11, the pair is merely 6 basis points above the confluence of its 100-day SMA and 61.8% retracement of its 74.70-70.35 down wave. If it manages to hold the significant line, it could subsequently find it difficult to pass its 3-month high at 72.35. Oscillators in oversold territories suggest that it could retrace some of its recent advances, at which point it could find support at the previous congestion level of 71.50. If it breaks, it could head as low as 70.50 to find the confluence of a twice-tested top and its 20 and 50-day SMAs.


CADJPY

The Commodity Play

As Canada is one of the largest petroleum exporters in the world and Japan must import some 99% of the oil that it uses for its necessary manufacturing activity, the pair represented a solid long for traders who expect the price of crude to remain well bid.  Todays rally was particularly well funded by price action in spot crude on the New York Mercantile Exchange.  Oil spiked to a record high $78.40 per barrel in the pit before closing the session out at $76.80, itself the highest close ever. Setting the tone in the energy pit for the day was the escalation in the conflict between Israel and Palestine.  Two of the biggest sparking points for what could be all-out war was the second wave of attacks on the Beirut airport, where fuel tanks were targeted; and threats from Iran that if Syria is attacked it would touch off a religious war.  Looking ahead, there will be few serious market moving economic indicators that will likely be able to move this pair more than fluctuations in oil will be capable of.  A few of the indicators that could potentially sabotage the high correlation between crude and the pair though could be Japans Tertiary Index and/or Canadas securities transactions and CPI.

Technically Speaking

The Japanese Yen lost big on the day against most other currencies, and the Canadian Dollar was no exception. The CADJPY bounced off joint support of the 50 and 100-day moving averages at 101.90 to rocket to the 61.8 fibo of its 104.40-102.00 drop at 102.90. Though it initially broke the short-term barrier, it lost 30 points to find its 5 day average at 102.92. A long wick at the top of an otherwise bullish green candle implies that we could see it bounce back from the 103.00 handle. If this is to happen, its nearest support lies at the morning low of 112.00. Alternatively, a further ascent could take it to its triple-top in the 114.10-114.40 range.


USDJPY

Risk Aversion

Perhaps one of the most heavily followed pairs leading up to the BoJs announcement Thursday night, the USDJPY pair consisted of the two most contradictory units amongst the majors for the day.  While a 25 basis point hike in the Japanese OCR should have sparked bidding in the pair, since it now produces a positive yield, it instead fell back on comments from policy officials who made it abundantly clear that they were not going to raise rates anywhere near as aggressively as other central banks have been doing recently.  With all the build up in the weeks prior to the announcement, the yen still had spare room for a sell off.  On the other side of the pair, the dollar was the currency bid on risk-aversion despite a slew of bearish economic indicators.  Import prices eased, retail sales contracted and consumer sentiment waned as energy, high lending rates and gasoline prices began to take their toll on Americans disposable income.  Despite this hit to the less than perfect economic picture that will be evaluated by the Fed in its policy meeting in August, dollar traders were more interested in a safe harbor for their capital in an unstable environment where volatility can become an unwanted burden.

Technically Speaking

The dollar-yen rallied for the third time in five days to test its 200-day SMA in the days trading. Closing at 116.20, the pair is just four points above the current level of the long-term moving average. If it fails to hold 116.16, it could dip below to test recent support at 115.00. It is interesting to note that it posted a strong ascent despite a very bearish hammer reversal pattern in yesterdays trading. Typically when a given currency shrugs off such a strong reversal signal, it is likely to continue on its momentum. As such, look for the USDJPY to test the upper line of its 8-month channel at 117.00. A break above this psychologically significant barrier would prove bullish for further medium term gains in the USJPY.