USD/JPY Technicals – Draghi’s Negative Rate Talks Pulling Bulls Up

USD/JPY bulls got a lifeline yesterday in the form of Draghi’s press conference after the ECB rate cut. On top of slashing policy rate down by 25 bps to current 0.50%, Draghi shook the world by saying that he and other policy makers are “open minded” about negative interest rates within Euro-zone. This was regarded as a huge “risk on” sign as investors and corporations alike would be forced to take out savings and pump them into traditional riskier assets rather than keeping them in the bank. Taking risk on their funds with return potential is certainly better than a sure loss scenario. This risk on rally allowed Yen to weaken further, pushing USD/JPY back up above 98.0 within the same period, alleviating the bearish pressure that price has been suffering from since the start of the week.

Hourly Chart

However, despite given the lifeline, bulls didn’t really do much. Price did manage to break above Monday’s highs, but ultimately failed to close within above it. Instead price pulled back almost immediately, giving up 80 pips from the peak of 98.4. The saving grace for bulls was that price managed to rebound from the 97.6 consolidation zone ceiling, but again the rebound was kept below the resistance zone above 98.0.

Currently price is consolidating around within a 20 pip range since early Asian session. Stochastic reading is strangely forming an interim trough right now with Stoch line crossing Signal line from below. If the signal proves to be effective, we could potentially see price moving into the 98.0 – 98.5 resistance band, forming a new consolidation zone in the process. If price fail to break into the consolidation zone even with the Stoch trough, the likelihood of 97.6 being retested increase.

Daily Chart

Daily Chart is neutral right now. The breakout from the rising trendline which was hinting to form a double top pattern has stalled. Price did not truly test the 96.8 ceiling of March before bullish correction took place, severely dampening the bearish pressure from the breakout. However, the double top possibility is not truly negated without price breaking above 98.5, which is the interim support for both “tops” in April. Bears have other things to worry about as well – Stoch line is currently flattening out, and look likely to form an interim trough above the Oversold region. This suggest that current bullish correction may not be fully over yet, but in fact only just begun, making a proper test of 98.50 possible, and a break towards 100.0 is back in the cards.

The fundamentals for USD/JPY remains the same. The main driver that can push Yen weaker is now long gone with BOJ’s Kuroda not committing to further stimulus right now. USD/JPY is also notoriously mute to Japanese fundamentals, which leaves Yen at the whim and fancy of risk trends for now. With US NFP coming later during US trading hours, we could see if the numbers may invoke a risk on or risk off reaction that can bring prices up towards 98.5 or push price back below 97.0 The issue is not whether price will move, but rather how price reacts when those significant levels are hit in order for us to gauge overall risk sentiment of the market.

In other news, ECB’s Nowotny has said that he does not see any possibility of negative deposit rates in the near future, and that Draghi’s statement about possibility of negative rates does not imply that he wants it, but rather he was making a point about their commitment to do “whatever it takes”, and being open minded to all possibilities, including those that may be considered outrageous. Notwotny’s interpretation is funny though, as we already know that Draghi will do whatever it takes from the Cyprus bank levy saga, and “recommendations” to Bank of Cyprus to sell their Gold reserves – he has made his point enough. Draghi chooses his words well, and certainly the mention of “negative rates” is not just rhetoric, but an indication of future intentions.

What does it mean for USD/JPY then? Well, at least USD/JPY bulls can rest well knowing that Eurozone instability will most likely not be a factor that will bring risk appetite down, for now at least.

More Links:
GBP/USD – Maintains its Level Around 1.5550
EUR/JPY – Right Back Within Wedge After ECB’s Rate Cut
AUD/USD – Mute Response from Better Producer Price Index

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