Home FX Japanese Yen: USD/JPY (JPY=X) Powell’s Optimism Drives Risk-On Rally

Japanese Yen: USD/JPY (JPY=X) Powell’s Optimism Drives Risk-On Rally

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Japanese Yen: USD/JPY (JPY=X) Powell’s Optimism Drives Risk-On Rally

The Federal Reserve lowered interest rates for the third time this year by 25bp. While the move was widely expected, it triggered a small expansion in FX volatility.

USD/JPY surged above 109 to a high of 109.28 before u-turning lower while EUR/USD dropped to 1.1080 and then rebounded above 1.1140.

Fed Chairman Powell made it clear that Wednesday’s move was an insurance cut aimed at offsetting the risk of softer global growth and uncertain trade developments.

Despite the decision to ease, the FOMC statement and Powell’s comments were laced with optimism. The Fed expects the economy to continue to grow at a moderate rate as they see a strong labor market and consumption.

Their worries center on investment and exports but with Brexit and trade risks easing, they “believe monetary policy is in a good place.” All of this tells us that the Fed is done for the year and has no intention of lowering rates further.

In fact Powell said point blank, “we’re not thinking about raising rates right now.” Yet the dollar failed to hold onto its gains as Wednesday’s move turned out more positive for risk than for the greenback. This could be tied to Powell’s warning that the General Motors (NYSE:GM) strike could cut growth by a couple tenths this quarter or to worries about Apple (NASDAQ:AAPL) earnings.

Investors may also be refraining from major positions ahead of Friday’s nonfarm payrolls report. Regardless of the motivation, we don’t expect further cuts from the Fed this year so the dollar should start to trend higher.

Technical Indicators

Overall, the bias in prices is: Sideways.

By the way, prices are vulnerable to a correction towards 108.07.

The projected upper bound is: 109.95.

The projected lower bound is: 107.88.

The projected closing price is: 108.92.

Candlesticks

During the past 10 bars, there have been 4 white candles and 5 black candles for a net of 1 black candles. During the past 50 bars, there have been 28 white candles and 21 black candles for a net of 7 white candles.

A long upper shadow occurred. This is typically a bearish signal (particularly when it occurs near a high price level, at resistance level, or when the security is overbought).

Momentum Indicators

Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.

Stochastic Oscillator

One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 71.6053. This is not an overbought or oversold reading. The last signal was a sell 0 period(s) ago.

Relative Strength Index (RSI)

The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 62.11. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a buy 56 period(s) ago.

Commodity Channel Index (CCI)

The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is 149.This is an overbought reading. However, a signal isn’t generated until the indicator crosses below 100. The last signal was a sell 8 period(s) ago.

MACD

The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a buy 13 period(s) ago.

Rex Takasugi – TD Profile

FOREX JPY= closed unchanged at 108.870. Volume was 13% below average (neutral) and Bollinger Bands were 9% wider than normal.

Open     High      Low     Close     Volume___
108.870 109.280 108.700 108.870 79,121
Technical Outlook 
Short Term: Overbought
Intermediate Term: Bullish
Long Term: Bearish
Moving Averages: 10-period     50-period     200-period
Close: 108.67 107.59 109.04
Volatility: 3 6 7
Volume: 86,528 91,845 91,135

Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.

Summary

FOREX JPY= is currently 0.2% below its 200-period moving average and is in an upward trend. Volatility is extremely low when compared to the average volatility over the last 10 periods. There is a good possibility that there will be an increase in volatility along with sharp price fluctuations in the near future. Our volume indicators reflect moderate flows of volume into JPY= (mildly bullish). Our trend forecasting oscillators are currently bullish on JPY= and have had this outlook for the last 13 periods.

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