What started as an innocuous Monday morning turned out to be a bad day for bulls as Japanese Tankan Survey surprised traders with a wash – all 5 key numbers released were lower than expected. Risk appetite decreased significantly with Nikkei leading the way for the bears. The flight to safety is also keenly felt in USD/JPY as the safe haven traded lower, breaking 94.0 support in the process.
Price didn’t look back after 94.0 has been broken, with acceleration seen when the rising trendline has been breached. Ichimoku traders might have seen this coming, with this morning gap higher failing to push above the current cloud despite the bullish Kumo twist seen earlier. The initial Tankan Survey reaction pushed price back below the Kumo immediately, and the recovery failed to re-test the cloud – a strong bearish sign which eventually came through despite no other strong fundamental news driver later in the day.
The outlook is even bleaker for bulls on the Daily Chart. Price has given up all of the gains post 94.0 breakout and is trading into the consolidation range between 92.0 – 94.0 found back in Feb. Stochastic readings are entering into the Oversold region, but any bearish indication from this should be filtered due to readings still pointing lower. Also, readings are currently lower than the trough found on 1st Mar, which indicate that momentum is still on the downside, and may remain lower until evidence of reversals can be reasonably seen.
Thursday’s BOJ announcement on Monetary Policy will determine whether this bearish breakout have legs to run. Depending on the outcome, a strong dovish announcement worthy of the “bold monetary action” Kuroda and Abe loves to keep near their mouths will help to simply render current foray lower as a mere “false break”. 94.0 remains the key line in the sand that separates a “confirmation” or an “invalidation” should we test the level again. Nonetheless, for true bullishness to take hold, price should preferably trade above Mar high, to give confidence that a new high may be forge. On the flip side, if Kuroda disappoints on his first attempt to shake up the Japanese economy – which remains a high likelihood, the 92.0 consolidation floor and perhaps 90.8 structural resistance (the swing low back in Feb and consolidation back in late Jan) may be easily broken, to usher in a new bearish cycle for USD/JPY.
As the saying “easy come, easy go”, the manner which USD/JPY manage to rise was not supported by any substantiated BOJ action, but rather was built on the promise of future action. Unfortunately the future is now and the promise need to be delivered, or else the retribution of the market will come in swift and merciless. This is not saying that USD/JPY will collapse back below 80.0 which was where the rally begun, but certainly we can expect strong bearish momentum erasing a huge percentage of gains made since Sep ’12 lows as structural support between then and now is hard to find, given the strong bullish momentum experienced in the past 2 quarters.
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