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The technical picture for USD/JPY looks fairly bearish right now, while the likely weakness in CNY will not be good for Japan either. However, as we have seen over the years, bad news is good for the JPY as it raises the prospect that money managers will repatriate funds back to Japan. With Crimea convincingly voting to be part of Russia again, this could also lead to further weakness in the pair, as the uncertainty of economic sanctions on Russia will not be good for sentiment. We also need to be cognisant of the extremely large short JPY position held by speculators. The MACD indicator on the weekly chart has been an excellent guide on direction over the past few years, and if you had sold when the MACD crosses below the signal line and reversing to hold long positions when the MACD was above the signal line, then you would have done very nicely indeed.
It’s long been speculated that the PBoC would widen the daily trading band from 1% to 2%, but why they chose now is interesting given the big pick up in volatility of late. For those unfamiliar with this pair, the PBoC control the mid-point through ‘fixing’ it at a level they see fit at 12:15 AEDT and the currency starts trading at 12:30. From here, the market is free to push the pair around up to or down to 2% from this mid-point. Liquidity in the pair is certainly less than one of the big G10 currency pairs, so a 2% move can happy more easily. However it’s fair to say that because of the actions from the PBOC we should see a further escalation in volatility. This in turn could have big ramifications on other markets, such as copper. I expect strong upside here today.
The technical picture on the daily chart is looking very dicey indeed, having completed the multi-month head and shoulders pattern, while the commodity continues to pull away from the key $3.00 level (quoted as 30000 on the IG platform). With the PBoC increasing the daily trading band to curb speculation, this in turn could cause many who have bought copper to use as collateral to source CNY from the shadow banking committee to then sell the commodity, as in many cases their loan covenants would have been breached.
The market closed below the March 3 low of 5340.3, which is also the neckline of the double top pattern. A move to 5200 could be on the cards as a result and judging by price action in offshore markets the path to 5200 will likely accelerate today.