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USDJPY

Trade Accounts Favor The Dollar?

After a quiet start to the week, a dollar rebound was in the works Wednesday as bulls have lived from release to release to find the support for their currency.  The report of Mays balance of goods and service trade had previously been one of the most bearish indicators for the unit, especially in April when the months net foreign investment influx failed to offset the trade gap.  With the sell off from the previous trade/TICS combo fresh in traders minds, positioning before todays balance was erring on the side of a worst case scenario.  However, this pessimistic turn never came to pass as Mays account deficit swelled only slightly to a $63.8 billion deficit, versus expectations of a larger $64.9 billion.  While this was one of the least volatile fluctuations in some time, and was further not that far short of expectations, the pent up doubt surrounding the pair put bulls back in control and encouraged shorts to further unwind their positions.  However, a word of caution.  Though the bears have unwound shorts now in the wake of a largely unchanged trade shortfall, the sentiment behind trade woes is really in two parts.  If the  TICS report for the same month similarly unchanged, there will be no bulls in site as it would be the second month in a row that foreign investment capital was unable to fund the trade outflow.

Technically Speaking

The Dollar-Yen rallied with authority on the day, crossing through its 100-day SMA for the sixth time in the past three weeks. Given that this is typically a line of stiff support and resistance, the currencys total disregard of the key level highlights the indecision in Yen trading. It remains almost exactly at the halfway mark between its 3-year high of 121.38 and the 10-month low at 108.96. Hourly oscillators provide little clarification, with mixed signals on the RSI and Slow Stochastic indicator. Regardless, we can see fairly clear resistance at the two-week high of 115.75 that may push the pair lower. To that effect, the nearest support can be found at the previous congestion level of 114.70

AUDJPY

Oil, Gold and Confidence

The AUDJPY is one of the most highly correlated pairs to fluctuations in commodities.  This makes since given that Japan as a manufacturing economy must import most of the raw materials that it uses in production; and Australia, a member of the commodity bloc, relies heavily on its exports to drive domestic growth.  Gold, of which Australia is the second largest producer in the world, rose 1.3 percent to $651.20 per ounce on the close of the New York Mercantile Exchange.  This was the second day of strong bidding for gold as risk averse investors around the world were seeking a safe haven for their capital after yesterdays train bombings in Bombay. Spot oil was also on the rise as gas and oil inventories contracted, while France announced it was handing off talks with Iran back into deadlock with the UN.  Crude prices moved back above $75 per barrel in electronic trading following the close of todays New York session after a run in mid-day was sparked by the announcement that inventories fell 6 million barrels over the past week.  Adding the final boost to the aussie bid was economic release of consumer confidence for the current month.  According to Westpac survey, optimism was had grown 3.5% at the beginning of the month as A$36.7 billion worth of tax cuts lined Australians pockets with more money.

Technically Speaking

 Similar to its Kiwi counterpart, the AUDJPY breached the upper channel of its 5-month wedge formation to finish 80 points above yesterdays close. Now well above its upper Bollinger band for the fourth time in six trading days, a slight reversal seems warranted before it attempts to rise above the 87.00 mark. Regardless, this bullish continuation pattern suggests that we may see continued gains in the time to come. A pullback from current levels could find a soft landing at the previous resistance of 86.50, while continued gains would need to clear the 87.00 price level with conviction for confirmation. If it does so, we could see the pair test the 61.8% retracement of its 91.30-82.00 downturn at 87.80.

NZDJPY

Padding The BoJ Announcement

As the economic outlook for the New Zealand economy remains dour, the more immediate speculation over the Bank of Japans monetary policy meeting, which begins tonight, has helped the NZDJPY to rally. Over the past few weeks, expectations of the BoJ finally lifting its ZIRP in favor of a 0.25% overnight lending rate have risen so high that the hike has been fully discounted in both the futures and currency markets.  That has put the yen in a precarious situation where anything short of a 25 basis point hike accompanied by some prospect of further tightening could lead to a sell off. Providing some initial hesitation in the count-down to zero hour was Japan's Finance Minister, Sadakazu Tanigaki, who said there was no need for the Bank of Japan to rush into tighter monetary policy.  Given the reaction from this rather inconsequential comment, the decision and verbiage that will follow the actual rate itself is likely to produce a strong run in all yen-based pairs.  If the deicison falls to a hike with hawkish commentary to boot, trading against a weak currency like the kiwi could be the best way to go.

Technically Speaking

The NZDJPY broke through its 50-day SMA and the upper channel of its quarterly trend to finish 56 points higher on the day. With oscillators deep into the overbought territory on the 4-hour charts, a slight retracement seems increasingly likely. If this move materializes, we may see it retest the aforementioned upper channel line at approximately 70.75 and its 50-day moving average at 70.50. Otherwise, a further rally would encounter relatively heady resistance at a previous congestion level of 71.50. Regardless, the escape from its trading wedge of the last 2 months could spell future gains for the NZDJPY.