USD/JPY received a new breathe of life thanks to Bernanke’s QE Tapering talk. The resulting strengthening of USD allowed USD/JPY to push up higher. However, USD/JPY continue to languish between 97.0 – 98.5 during most part of last week, until the last ditch rally of Nikkei 225 helped push USD/JPY higher, breaking the 98.50 resistance and traded above 99.0. Since then, price has never looked back, with today’s better than expected Tankan Survey helping to boost the tattered reputations of Abenomics that has suffered tremendously in the weeks before, allowing JPY to weaken further, sending price above 99.50 currently.
From a technical perspective, current bullish momentum is railroaded into current steep rising Channel. Price did threatened to push back lower below 99.50, but was brought back higher due to a combination of Channel Bottom support and stronger Nikkei 225 which pulled USD/JPY higher along. Looking at Stochastic, despite readings currently entering the Overbought region, the divergence between higher Price troughs versus lower Stoch troughs suggest that bearish cycle signals should be taken with a pinch of salt. Considering that readings are only bordering on the Overbought level, it is entirely possible that readings will be able to enter deeper into Oversold before turning around, potentially due to a confluence of 100.0 resistance and Channel Top resistance.
Weekly Chart is highly bullish, with last week’s bullish candle confirming the holding of 94.0 support. Currently the only resistance standing in bulls way is the aforementioned 100.0 level, which may prevent price from reaching the Channel Bottom/ 102.0 resistance confluence. Nonetheless, if price is able to form a strong 3 White Soldier this week, the likelihood of prices breaking back into the rising channel increases, and a full reversion of the uptrend seen since late 2012 may be back in play. Currently, though price has cleared the 50% Fib retracement (from 2013 May high to June low not shown on chart), the 61.8% Fib which is slightly below 100.0 is not yet cleared, which continue to leave the door ajar for the decline of 103.7 – 94.0 to remain in play. Stochastic readings are currently pointing higher after rebounding from the “support” around 40.0, suggesting that a bull cycle may be in play, but similarly, readings should preferably breach above 60 in order for stronger conviction of continued bullish momentum to be in play. It is possible that such a scenario may be in line with price breaking 100.0, and lines up nicely with the previously mentioned scenario.
Fundamentally, recent positive economic data is helping BOJ and Abenomics regaining back some credibility. The fact that market is continuing to bet that Bernanke would not be able to carry out his QE3 tapering timeline is also helping sentiments surrounding BOJ, as speculators are using the same argument for Japan – assuming that the situation is so bad that Central Bank will be forced to implement further stimulus – instead of standing idle like what BOJ said they would do. If this assertion is true, then perhaps we are simply one actual QE tapering away from a catastrophic sell-off in both USD/JPY and Nikkei 225, especially if BOJ continue to refrain from further initiating new stimulus plans.