USD/JPY closed above 157 for the first time since the MOF last intervened, which brings 158 into focus for bulls. Crude oil also rose over 3% on Tuesday from arguably oversold levels.
By :Matt Simpson, Market Analyst
On May 1st, we saw USD/JPY plunge nearly 500 pips from its daily high in what is thought to have been the second intervention from the MOF (Japan’s Ministry of Finance). While one could argue this goes against fundamentals and that it is futile for a central bank to fight them, it can also be argued that their objective was achieved: to slow the decline of the yen. The MOF (and BOJ) are more concerned with the speed of the yen’s depreciation, rather than the specific level at which it trades.
However, this doesn’t prevent market forces from establishing key levels of their own. This past week, 157 appeared to be the latest self-imposed glass ceiling for USD/JPY, until we saw a daily close above it on Tuesday.
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USD/JPY technical analysis:
The daily chart shows a bullish engulfing day that closed above a tight 3-day range and the 157 handle. Its low found support above the 156.28 high, and my bias remains bullish above this level. While I see the potential for further gains, I also suspect gains may be on the cautious side as we approach the ‘MOF intervention level’ near 158 – making it the latest self-imposed glass ceiling for prices. At least heading into Friday’s PCE inflation report from the US. The 1-hour chart shows a strong rebound from the weekly pivot point, and prices are consolidating near the day’s high. Pullbacks towards 157 may appeal to bulls, with the daily R1 pivot (near 157.40) and the weekly R1 pivot (near 157.60) providing potential upside targets.
Crude oil surges 3% ahead of OPEC+
Crude oil rose over 3% on Tuesday on expectations that OPEC+ will extend their output cut at next week’s meeting. Whilst I cannot claim to have foresaw that particular rally, it did not come without warning. Managed funds and large specs reduced gross shorts for a second week up until last Tuesday, managed funds increased longs. And intraday spikes below $77 were consistently bought.
WTI crude oil rose at its fastest daily pace in two months with a firm close above the 200-day EMA, although it has met resistance around the 200-day average and $80. With momentum clearly picking up from the lows, it appears the upside could be the path of least resistance.
Crude oil technical analysis:
Intraday prices action shows a very strong move higher since its recovery back above $77 with practically no pullbacks along the way. WTI is higher during early Asian trade, and any pullback towards the $80 – which is also near the monthly S1 pivot and high-volume node of the $77-$80 trading range are likely levels of support. The next stop of WTI crude oil seems to be the $81 - $81.57 range.
- The US dollar reversed its course upon the return of European and US trading desks, to recoup its earlier losses of the day become the strongest forex major by Tuesday’s close
- The US dollar index perfectly respected the December 2024 trendline and formed a small bullish hammer (along with USD/CHF) which saw AUD/USD, GBP/USD, and EUR/USD form shooting stars or bearish pinbars
- Gold retraced higher for a third day, although its mere 1.7% rise of the past three days remains overshadowed by the 4% plunge is endured last Wednesday and Thursday, which keeps gold on my ‘sell the rally’ watchlist
Economic events (times in AEST)
Australia’s inflation report will be the main event for RBA watchers today, but unless we see a material drop off in prices it seems unlikely to sway the RBA’s current stance; rates to remain at 4.35% with a slight hawkish bias. Besides, as my colleague David Scutt pointed out to me this morning, “Just remember with cpi that this version is useless for services prices” as he thinks “two services categories are updated in the first month of the quarter”. As the case may be, a sudden and welcomed drop in the figures should make AUD/USD react with a bearish jolt and likely send the ASX 200 up from its lows, even if the RBA will want more data before dropping their hawkish bias.
- 11:30 – Australian monthly CPI report, construction work done
- 11:30 – BOJ board member Adachi speaks, household confidence
- 16:00 – German consumer sentiment (GfK)
- 18:00 – German state CPIs, Eurozone loans
- 22:00 – German CPI
– Written by Matt Simpson
Follow Matt on Twitter @cLeverEdge
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