USDJPY
A double blow for USDJPY traders in the last 24h – the Fed signaled average inflation targeting and then the Abe resignation news. The combo sent the USDJPY in both directions, tripping stops on both sides.
On the Fed’s announcement, the USD slipped dramatically, as the Dollar index dived. The USDJPY dropped to 105.50 before bouncing back above 106. Next, when Abe news came out, the JPY dropped, sending the USDJPY pair close to 107 before reverting back to 106.
The news took the market by surprise, even though it should not have that much of an impact on the grand scheme of things. After all, Abe had only one year left of its mandate. Moreover, the market “sniffed” something as he recently had some health checks done.
But the Nikkei 225 dropped significantly on the news. In fact, the drop is quite important because it diverges from the main indices in the United States.
At the time that the Fed made its announcement yesterday, the news was considered pretty much priced in. Chatter on the market existed for a while that the Fed will change its price stability mandate, and its members did not deny it.
However, the USD still dropped, on the news, corrected a bit, and now the DXY is towards its lows again. The USDJPY pair is back to the 106 level, like nothing happened – Abe’s resignation or Fed’s message.
The USDJPY pair looks weak here. The run at the highs caused by the Abe news came in the context of a bearish divergence. If it manages to break the rising trendline, bears will try to push it lower towards 104. Therefore, consider trading a break at 105.50 for 104 with a stop-loss at 106.50.
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