Yen surged on Tankan Following dollar's sell off after yesterday's FOMC statement, an encouraging Tankan survey form BoJ further pushed a strong rally in Japanese Yen today. USD/JPY fell steeply to as low as 118.49 so far. Though initially dropped after a less than expected headline number of 21 (vs expectation of 23), Yen surged again sharply after market realized that the report is indeed a good one which shows the recovery led by the large manufacturing sector has now rotated to the non-manufacturing sector and to small enterprises.
The diffusion index for large manufacturers rose from 19 to 21 and that for non-manufacturers from 15 to a 13-year high of 17. Confidence among small manufacturers rose to 7 from 3 in October and confidence among small non-manufacturers climbed to - 7 from - 11. Also, large companies plan to increase spending by 10.4% this fiscal year, the first double digit increase since fiscal 1990.
Yesterday, Fed raised interest rate to 4.25% as widely expected. While, the Fed continues to use the word at a "measured pace" which has been used for 18 months, it has stopped saying there is "accommodation" in its policy, indicating that from the Fed's point of view, the rate is no longer low enough for stimulating economic growth. In other words, the rate is now close to neutral and the current tightening cycle may come to an end soon. Fed's statement reposted here. Dollar was engaged in a round of sell off initially but failed to get through near term support as market hesitates. However, Euro and Yen was sharply higher again in Asia.
EUR/USD After trading in volatile manner following FOMC's statement, EUR/USD's rally resumes today in Asia and rose to as high as 1.2037 so far. At this point, the rally remains healthy as long as EUR/USD stays above the lower channel line shown (now at 1.1954) and rally should continue towards longer term trend line resistance (from 1.3483 to 1.2587 and now at 1.2063).
However, as discussed before, the current rebound from 1.1659 is being treated as a correction to the whole decline from 1.2587, we'll need to pay attention to any sign of loss of upside momentum when EUR/USD gets near to this trend line. The bearish divergence shown in hourly RSI and possibly divergence too in MACD will probably limit upside to this trend line resistance and bring short term reversal.
So, a break below the lower channel line at 1.1954 will indicate a top has possibly formed and EUR/USD should then heads towards 1.1904 support or further lower. But still, as long as 1.1847 resistance turned support remains solid, chances for another rebound remains.
Meanwhile, a break above the trend line will further add evidence to underlying strength in EUR/USD and could lead to further rally towards 50% retracement of 1.2587 to 1.1641 at 1.2114 or even further to 1.2171 resistance.
GBP/USD Unlikely EUR/USD and USD/JPY, cable is still bounded within sideway trading inside established range between 1.7662 and 1.7777. As 4 hours MACD has turned below signal line now, chances favor further consolidation with risk of pullback towards 38.2% retracement at 1.7591 but downside should be supported there and bring rally resumption.
On the upside, above 1.7777 again will confirm resumption of yesterday's rise and push cable further towards resistance zone of 1.7902 resistance (with 61.8% retracement of 1.8498 to 1.7047 at 1.7944 and longer term falling trend line (from 1.9219 to 1.8498, now at 1.7963).
One thing to note is that the rebound from 1.7047 is treated as correction to the fall from 1.8498. The rally was now limited right at 50% retracement of 1.8498 to 1.7047 at 1.7773. We don't be surprised to be proved the rally ended there at 1.7777 already and bring deep fall. But at this point, a firm break below 1.7591 will be needed to indicate an important short term top has formed first.
On the other hand, a strong break above will add much evidence to the underlying bullishness in cable and we may see the rally the extend to 1.8498 high again in the coming weeks in such case.
USD/CHF Similar to EUR/USD, USD/CHF resumed decline today in Asia after trading in volatile manner following FOMC statement and reached as low as 1.2810 so far. At this point, the fall remains healthy as long as upper channel line (now at 1.2919) holds and decline is expected to extend towards mentioned downside target of 1.2695 support and possibly the longer term rising trend line (from 1.1481 to 1.2239, now at 1.2669).
However as discussed before, the current fall from 1.3283 is being treated as a correction to whole rally from 1.2239. Attention will be paid to any sign of loss of downside momentum which could lead to strong rebound. The bullish convergence in hourly RSI and probably in hourly MACD too will probably contain downside above the support zone of 1.2669/95.
So a break above the upper channel line of 1.2919 will first signal a low is formed already and in that case, USD/CHF should recover towards 1.2964 resistance. A firm break above this level will risk much stronger rebound.
Meanwhile, a strong break below the mentioned trend line will add much evidence to underlying weakness in USD/CHF which could possibly lead to even steeper fall to 1.2239 low again in the coming weeks.
USD/JPY We've been talking about possible reversal for some time. USD/JPY's recovery failed to get above 120.40 resistance firmly and finally turned around fell sharply today. Steep decline has pushed USD/JPY to as low as 118.49 so far, slightly above mentioned support zone between 118.18 and 118.40 (with 23.6% retracement of 108.75 to 121.38 at 118.40).
As discussed before, USD/JPY has just retreated from an important resistance zone with 100% projection of 101.65 to 113.74 from 108.75 at 120.84, long term pattern resistance at 120.71 and long term falling trend line (from 147.68, 1998 year high to 135.20, 2002 year high) which is now sitting at 121.35.
Now, getting close to 118.18/40 support zone and stayed firmly below the lower channel line indicates the rally from 108.75 has finally ended. At this point, as long as minor resistance of 119.17 holds, the fall is still in good shape and a break below 118.18 will extend USD/JPY's weakness towards 55 day EMA (now at 117.42). However, downside could be contained there first due to oversold condition in 4 hours RSI.
Touching of 119.17 will turn intraday outlook consolidative first and risk further recovery but as long as 119.52 support turned resistance holds, short term outlook remains bearish and decline should resume sooner rather than later.
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