Forex: USD/JPY set to retrace after positive Tankan reports

on Dec 16, 2013
Updated: Oct 21, 2019
Listen Monday, December 16th:_ The USD/JPY last week tested the 22 May high of 103.73, reaching its highest point for the past five years at 103.91 before profit-taking saw the quote close below the 103.73 peak. The pair gained 0.22 percent for the week in closing at 103.19. The price action formed a spinning top candlestick pattern, indicating market indecision.

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Since early December the daily MACD (9, 12, 1) has been drawing lower highs, while the price action has been logging higher highs – a condition called divergence and meaning that the trend is weakening with a counter movement brewing.
As Commerzbank observes, “last week’s high was not confirmed by the RSI and this is now a triple failure of the daily RSI. The market has eroded the 102.78 uptrend and we look for a slide back to the July 2013 high at 101.54.”

The bank notes that the Elliott wave count on the daily charts is suggesting that the price may fall to 100.90 and adds that “longer term, the market has recently broken up from a large triangle points to a longer term target of 108.86. We have an additional target en route at 105.48, the 61.8% retracement of the move down from 2007.”
Today’s Asian session saw the Bank of Japan releasing its Tankan Manufacturing Index for the fourth quarter, which grew to 16 points from 12 in Q3. Analysts had expected a reading of 15 points and the better number suggests that the government’s stimulus policies are consistently producing upbeat sentiment.

The Non-Manufacturing Index rose to 20 points in Q4 from the prior level of 14.0. The Large Manufacturing Outlook Index showed a jump to 14.0 points in the quarter from 11 in Q3.

Izumi Devalier, an economist at HSBC Holdings in Hong Kong, writes that “we still don’t find any evidence that corporates are really starting to get confident about the sustainability of the recovery and actually ramping up domestic investment”. He thinks “that remains a worry in an environment where consumption is going to weaken next year”.

Asian trading today saw the USD/JPY open at 103.23 and then reach an intraday high of 103.28 and a subsequent fall following the BoJ’s Tankan reports. The day’s low so far is at 102.63, from where the pair recovered with support from the 200-hour simple moving average, to be currently trading at 102.85.
In the United States today, the December Empire State Manufacturing Index is due out at 13.30 UTC.
The December Flash Manufacturing PMI follows at 14.00 UTC and Industrial Production m/m for November at 14.15 UTC.
Resistances today: 102.95, 103.25 and 103.73.
Supports: 102.45, 102.00 and 101.50.
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