Japan Q3 GDP (Q/Q) came in today at 0.3%, slightly lower than earlier estimates. This disappointment once again shook market confidence in Abenomics, pushing USD/JPY lower as speculators are less convinced that Prime Minister Shinzo Abe and BOJ Governor Kuroda will be able to achieve the 2% inflation rate (by ways of weaker Yen) that they have promised the market.
This disappointment is so huge that prices managed to erode away earlier gains which were fresh on the heels of Friday’s stupendous rally – a move brought by stronger than expected US NFP growth which drove USD and thus USD/JPY higher. This strong bullish momentum continued this morning, and appears to be on track to push up even higher today until the weaker GDP numbers pushed prices down, postponing further gains if not reversing the bullish sentiment outright.
Technicals agree with Stochastic readings showing a fresh bearish cycle signal from the decline with Stoch curve currently below the 80.0 level. However, price should ideally break below the 102.8 soft support before stronger bearish conviction can be confirmed. If 102.8 holds, bullish pressure will remain intact ad a push towards last week swing high of 103.4 and 2013 highs of 103.75 should be considered.
Pushing beyond 103.75 even in the most bullish of scenarios remain iffy though. Prices have now seen 6 consecutive weekly gains with equal numbers of higher lows and higher highs in the past 6 weeks, a feat that was only bettered back between November 2012 – Jan 2013, a sequence of 8 consecutive weekly gains with higher lows and higher highs. The difference between this sequence and the last was that the market was looking forward to a new BOJ stimulus package that was unprecedented. This is fairly similar to current sequence, where market is also waiting for BOJ to announce even more stimulus, but it should be noted that it is impossible that additional stimulus will be able to match current package, with Kuroda himself distancing from additional stimulus commitments. Furthermore, recent round of stimulus package announced by the Government to counteract the negative impact of sales tax hikes has been viewed as a disappointment, hence it would be very optimistic to think that market will actually be pleased with the yet to be announced additional stimulus from BOJ – if there is even any that is.
Therefore, outlook for USD/JPY should be bearish moving forward, and Technicals seem to agree with Stochastic readings suggesting that bullish momentum is waning and reversing ahead of the 103.75 test. This is not saying that a break of 103.75 is impossible, and certainly market irrationality can take us far higher than we can imagine, and traders should seek confirmation that price is reversing (and hopefully lined up with disappointment from BOJ announcements) for stronger bearish follow-through.
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