USD Trading All Over The Shop On USD/JPY Flows.

There was a flurry of “developments” out of Japan today that saw a dramatic pivot in JPY crosses after USDJPY seemed to want to have a look at the 100 level. The USD rally may be on flimsy legs, however.

USD crosses appear to be moving according to the whims of USD/JPY flows. The U.S. dollar is unable to move independently against other major currencies when the USD/JPY is on the move at the moment. This has been underlined over the last couple of days, first as the nervousness in asset markets and Japanese equities in particular saw the USD/JPY having a look well under the 101.00 level early this morning. At the same time, the EUR/USD was pushing 1.3000 and the GBP/USD was eyeing 1.5200. A flurry of developments out of Japan followed, including an IMF/Japan Finance Minister Taro Aso meeting in which an IMF official purportedly supports Abe’s efforts.

Meanwhile, a Reuters story on the potential for the $1 trillion public pension fund of Japan to modify its attitude toward equities (now that they have rallied over 50% ??) was another specific trigger. There’s not much meat on the bone in these developments, but enough for the market to chew on, apparently, so seeing is believing if the JPY is to rally from here. This is something I am expecting eventually, but the market action shows how difficult this will probably be to trade.

U.S. data today: a weaker than expected jobless claims number and a marginal downward revision to the Q2 GDP data. This is creating a bit of a diversion and backing off of the USD rally again. Watch treasuries and the USJPDY to see if the reaction sticks. The nervous money will have a hard time tolerating a rally in treasuries as well as a fresh rally in the JPY.

Stay careful out there.

Market observations
EUR/USD - 1.3000 again - really? That level was rejected and serves as obvious resistance, as the 200-day (1.3025) and 55-day moving averages (1.2980) also lurk in this zone. First support for the rally was 1.2940, a minor Fibo support. Bears need a fuller rejection of the rally back below 1.2900 to work up momentum for the next targets lower, starting with 1.2660 if the 1.2800 level and head and shoulders neckline fail. If 1.3000 gives way, we might be back for a test of 1.3200+

USD/JPY: The key 100.00 level is holding so far. The JPY crosses remain a confidence game on the effect of BoJ policy making, rather than a sober assessment of the fundamentals. I suspect they will pivot more forcefully at the same point in time when this fixed income sell-off is more broadly reversed. The U.S. treasury market put in an impressive rally late yesterday; if this fails to support the market for now, we could be back to trying the 102.50 resistance and even the 103.72 top.

Meanwhile, the 100.50 level is double underlined as the important support for now, and could be the trigger zone for a huge sell-off if we trade back down there again.

EUR/GBP – looking for possible extension of the rally – 0.8540 is the first support and a rally through 0.8600 could target 0.8750.

GBP/USD – found resistance at 1.5200 – still eyeing 1.5000 as the key barrier to test of sub-1.4900 lows. The latter is the scenario if USDJPY rallies, while we could stay rangebound, and even start carving out a boring range if USD/JPY tests back lower.

EUR/CHF – slow to respond to USD/JPY and JPY turnaround generally, which should also be CHF bearish. This means more upside for EUR/CHF if the JPY stays weak, otherwise, the pattern reversal suggests danger of a further descent back into the old range – starting with 1.2300/1.2350. 1.2600 is needed to get the rally back on track.

USD/CHF – nice support is found below previous range and just below the ideal support at 0.9580. This support area is very key now. Failure could very likely result if we are looking sub-100.00 in USD/JPY again. A big follow through rally is needed to confirm the reversal here, or else....

AUD/USD – a big candle reversal with divergence so far hasn’t been good for much, as sellers have come back in with the USD/JPY turnaround. 0.9400 is the next zone if support fails entirely. The pair did find support at an interesting level just below 0.9600, which could see it gear up for 0.9750 at least if the USD is broadly weaker again.

NZDUSD – signs of AUD/NZD resilience at last, but it won’t help NZD/USD lower if the USD is weak; rather it means that the AUD/USD will consolidate more sharply higher than NZD/USD.

USD/CAD – yesterday’s pattern reversal dominates unelss we close back above 1.0400 again today, looking at 1.0250/1.0200 as possible support zones lower.

SEK – overreaction to strong GDP, giving excellent re-entry levels for long NOKSEK trades.
NOK – EUR/NOK ready to test 200-day moving average eventually.