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Currently both the technicals and fundamentals paint a very neutral picture and therefore, until we get a clearer picture, we will be more inclined to look at other pairs.
As you can see in the chart below, USD/JPY is in a rather defined multi-month triangle pattern, showing strong consolidation, with neither the buyers nor sellers prepared to really push prices around. The daily MACD is close to zero, while stochastic indicators are in the middle of the range. In theory if the market was telling you a ‘fair value’, this is it.
Fundamentally, US bond yields have come back to 2.76% and are just testing the 2007 downtrend. Lower yields generally result in a weaker USD, as it is usually a sign of slower growth and falling inflationary expectations. Our longer-term bias is more positively skewed to the USD than JPY; given the BoJ is arguably the most aggressive central bank around.
We are keen to see if the pair can resume a new trend and for this to happen we probably need to see a closing break of the triangle pattern at 100.22 or 97.58. This will then coincide with the MACD firmly above or below the zero level. We will look at positions at that time.
Looking forward, traders will be keen to look out for the upcoming US payrolls reports on October 4 (current consensus is for 175,000 jobs), ahead of the next FOMC meeting on October 31. In Japan tomorrow we get the latest inflation read ahead of the TANKAN report on October 1.
The TANKAN survey is significant in Japan as it surveys a variety of businesses and while it details their view on current conditions, it also has a forward-looking survey which the BoJ will be closely looking at. The Abe government will also be keen to watch this data point, given the government is expected to announce an increase to the current sales tax from 5% to 8%. Of course they will be hoping businesses don’t see this as too much of a negative event, and this could be reflected in the forward-looking surveys.