Talking Forex Daily Wrap: USD/JPY Retraces The Bull Run

EUR/USD

The pair settled the session little changed, as the absence of market participants in the UK and the US depleted volumes and resulted in minimal price action. In terms of macroeconomic news flow, China's Premier Li Keqiang said on Sunday a stable EUR was in the best interests of China and the whole world. Speaking at a news conference in Berlin with Chancellor Angela Merkel, Li said China has offered its help throughout the Euro zone crisis. In other news, Diario Economico reported over the weekend that the Troika considers that there aren't any signs to support the need to ease Portugal's deficit targets. In terms of technical levels, supports are seen at the 10DMA line at 1.2897, 1.2821 and then at 1.2809. On the other hand, resistance levels are seen at the 21DMA line at 1.2999 and then at 1.3030.

GBP/USD

Similarly to EUR/USD, the pair also settled little changed, as market participants chose to remain on the sidelines and not risk being exposed to an occasional bout of volatility, especially during the Asian hours where there is a risk that markets may question BoJ’s credibility over its QE program. In terms of macroeconomic news flow, David Smith of the Sunday Times says 'don't assume Carney will print more money'. Smith writes that it is unlikely we will get a cut in interest rates and forward guidance is likely to be adopted. It would also look odd if Britain was restarting QE just as the Fed is winding down its programme. The easy assumption that Carney would bring a big and immediate increase in QE is not nearly as easy as it was. In terms of technical levels, supports are seen at 1.5065/14 and then at the 21DMA lower Bollinger level at 1.4983. On the other hand, resistance levels are seen at the 10DMA line at 1.5170 and then at the 55DMA line at 1.5265.

USD/JPY

Even though officials from the BoJ tried to suppress concerns over the weekend that the central bank is losing grip on the bond market and that the volatility which was observed last week, when the Nikkei 225 index fell over 7% is a one-off, the benchmark equity index continued its slide, losing just over 3% at the close. In addition to that, USD/JPY continued to retrace the bull-run and edged back towards the psychologically important 100.00 level. Break below would almost inevitably prompt questions over the latest attempt by the BoJ to end deflation and resume economic growth. Of note, BoJ’s chief said the country’s financial system could cope with rising interest rates only once the economy improved and that the risk of systemic instability was “not large”. However he also cautioned that their ability to cope nonetheless “depends on the degree and speed of interest rate rises”. In terms of technical levels, supports are seen at the 21DMA line at 100.62, the Kijun-Sen line at 100.37 and then at the psychologically important 100.00 level. On the other hand, resistance levels are seen at the 61.8% retracement of the 103.74 to 100.83 move at 102.56 and then at 103.74, this year’s high.