05-Aug-17
Yen 110.68/ JPYINR 0.5747/ US-Japan 10Yr yield spread 2.20%

Recap:

We had expected Dollar Yen to test 115-116 in July followed by a corrective dip towards 112-111 levels in our July’17 report.

Dollar-Yen came off from 114.50 to 110.55 in July contrary to our expectation of a further rise towards 115-116, mentioned in our Jul’17 report. The fall in Dollar Yen has been mainly because of an unexpected sharp fall in US Dollar Index below 96.

EXECUTIVE SUMMARY:

Dollar Yen has been trading near important levels just now. We are looking at two alternatives just now: either a break below 109.50 or a bounce back towards 113 from 109.50. A break below 109.50 could trigger a sharp fall towards 107-105 (we will take it into consideration on a confirmed break below 109.50/109.00). For now, the preferred view for Dollar Yen is on the upside.

1st Alternative: The first chart on the left shows a possibility of an A-B-C correction where the current price action is in the B-leg and could bounce back towards 114 again before coming off to levels near 110-109 in the coming months.
2nd Alternative: The chart on the right shows another possibility that the current fall may extend to levels below 110.00-109.50 to test lower levels of 107-108. In that case we may have to negate the immediate bounce back towards 112 or higher.

Overall the two possibilities shown above indicate that Dollar Yen is at a major inflection point just now having important support at 109.50. A break or bounce from this support will be the driver for further direction of Dollar Yen. While 109.50 holds, we stick to the 1st alternative; but considering the strong momentum of the fall from 114 levels, we cannot totally negate the possibility of the 2nd alternative playing out in the coming weeks.

Quarterly Projections

US-Japan 10Yr Yield Spread:

The US-Japan 10Yr Yield Spread (2.16%, LHS on chart alongside) has fallen from levels near
2.28% in July contrary to our expectation of a rally towards 2.33-2.35%%. The spread is currently just above immediate  upport and while that holds, we may see a bounce back to 2.30% in August. Overall the yield spread is likely to remain stable in August, remaining within the broad 2.33-2.10% before possibly rising beyond 2.33% in the longer run.

JPY/INR: To remain within 0.55-0.58

JPY/INR is trading near long term support at 0.55 and while that holds, the currency pair
looks potentially bullish for the coming weeks. A rise towards 0.60 is on the cards for the next couple of months. August could possibly see some stability in JPY/INR. The pair could test 0.55 on the downside before again coming back to current levels. Immediate resistance is visible near 0.58 which would not be very easy to break just now. JPY/INR could remain sideways for a
few more weeks before it attempts to break above 0.58.

Conclusion

Dollar Yen is trading at a crucial point. A bounce from 109.50 or break below would drive the next course of movement for the pair. While support at 109.50 holds, we prefer a bounce back towards 111-113 in August. Thereafter the currency pair could either remain stable for sometime or move up to test higher levels of 115-116 over September.

Note that in case the currency pair falls below 109, it could open up possibility of testing 107-105 for the medium term. We are not taking this into consideration just now as we wait to see price action near 109.50-109.00.

7-September-17 / Euro 1.19796

RECAP

In our August ’17 forecast (Euro was 1.1772) we called for a rise to 1.2050 this quarter and to 1.2250 in the following 6 months. The actual high in August has been 1.2070, just a little higher than our target of 1.2050.

EXECUTIVE SUMMARY

The Euro uptrend and longer term target of 1.2250 remain intact. There may/ may not be a correction down to 1.17-16

The uptrend since the Jan ’17 low of 1.0340 remains intact. Supports are seen near 1.18, 1.17 and 1.16. Deeper down, even 1.15 is a strong and credible Support. The Euro might/ might not see a dip to test these Supports. It is difficult to say. However, the important point is that while these Supports hold, which is quite likely, the longer term target of 1.2250 remains intact.

EURO: POSSIBLE PATH

The path of the Euro (RHS, inverted scale) has been closely entwined with that of the Dollar Index (LHS), as seen in the chart alongside.

The rise in the Euro from 1.0340 to 1.2070 has been accompanied by a fall in the Dollar Index from 103.56 (Dec ’16) to 92.30 now.

Technically, there is some chance that the Dollar Index could see a corrective bounce from levels near 91.40 towards 95-96 (see red dot in the chart) in the next couple of months. If that happens, the Euro could see a dip towards 1.16-15 also, before it again embarks on its longer term rise towards 1.2250.

EURO DEPENDENT ON ECB

Movement in the Euro is going to depend on what the ECB says today.

We suspect that the ECB might dither on when it is going to start winding down (or tapering) its asset purchases, then the Euro could weaken towards 1.18 and 1.17.

The reasons are (a) although economic data is good, inflation (European CPI is 1.32%) is lower than 2% (b) the US Federal Reserve does not seem to be in a great hurry to raise interest rates and (c) the Euro is very strong for now.

GERMAN-US YIELD SPREAD

The Euro has been rising from 1.0340 in Jan ’17 along with the rise in the Germany – USA 10Yr Bund/ Bond yield spread (currently -1.76%), from levels near -2.37% to as high as -1.72% recently.

Since April, however, the Germany – USA 2Yr Bund/ Bond yield spread (currently -2.06%, not pictured here) has been ranging sideways between -2.10% and -1.90% and has not been responsible for the strength in the Euro.

Therefore, going forward, further immediate gains in the Euro will be dependent on the Germany – USA 10Yr Bund/ Bond yield spread rising past -1.70%. Please see below.

GERMAN 10Yr BUND YIELD: CAN IT RISE TOWARDS 0.45%?

The chart of the German 10Yr Bund Yield (0.348%) shown alongside is in an overall uptrend since -0.2% in June 2016. A high of 0.576% was seen on 17-Jul-17, from where a dip back down to 0.35% has been seen.

There is decent trendline Support near the current level. If this holds, the 10Yr Bund Yield could rise towards 0.45% or higher.

If so, it could pull the German-US 10Yr Yield Spread above -1.70% and thereby pull the Euro up as well, past 1.20.

QUARTERLY PROJECTIONS

EURO-RUPEE: CAN TARGET 77, EVEN 78

 With the Dollar Index and the German 10Yr yield facing support below current levels (as already shown above), the preference for a stronger Euro is a possibility in the coming months.

In line with the Euro strength in the last couple of months EURINR has also risen and has been trading at long term resistance levels. Current levels are crucial. 77 or even 78 could be a possible target in the near term.

Stability or a slight rise in Euro could lead to a rise in EURINR towards 77-78 but we do not consider a rise past 78 just now. A rejection from 77-78 looks more likely after the sharp rally seen since March’17.  

CONCLUSION

Keeping the upside long term target of 1.2250 intact we may possibly see a test of 1.17-1.16 in Euro in the coming weeks. Overall some stability could be expected over the next 2-3 months at the least between 1.2250 and 1.1600.

12-Sep-17
Yen 109.32/ Gold 1326.44/ US-Japan 10Yr yield spread 2.06%

RECAP

We had two alternatives in our August report when USDJPY was 110.68: (1) Dollar-Yen breaks below 109.50 and sets up a sharp fall 107-105 or (2) Dollar-Yen bounces towards 113.00. Within these, we had a preference for the upside. However, the market has chosen to break below 109.50 and has come down, making a low of 108.27 in August, on the back of a sharp fall in the Dollar Index towards 92.50-92.00.

EXECUTIVE SUMMARY

Dollar-Yen has fair chances of trading within 106-110 region in September. A maximum downside of 106 seems possible from where a bounce back towards 115 could play out in the next 1-2 quarters. There is scope of range trade between the broad 115-106 region for another 2-quarter and till then it would be difficult to take a preference of a break on either side of the mentioned range.

Dollar-Yen has whipsawed between 108 and 115 in the past 6-months spending most of the time in the 110.00-112.50 region. As the chart above shows, there is scope for the current sideways consolidation to continue for another 4-5 months between the broad 115-106 region. Hence, we would have to wait for a confirmed break on either side of the mentioned range triggered by a surge in volatility to get some directional clarity for the coming quarters. For now, we look for range trade between 113 and 106 till at least November’17.

RESISTANCE IN GOLD MAY WEAKEN YEN

Strong correlation between Gold (LHS) and USDJPY (inverted, RHS) is visible in the chart alongside. Gold is trading near interim resistance near 1350. There is scope of testing 1375 on the upside before coming off from there. In case, Gold rises towards 1375 as expected, Yen could strengthen towards 107 in September itself.

Else, if Gold comes off sharply from 1350 to levels near 1300 or lower, Yen could move back towards 111-112.

Overall the broad 113-106 region may continue to prevail till at least Nov ’17.

US-JAPAN YIELD SPREAD FALLING

 The US-Japan 10Yr Yield Spread (2.09%, LHS on chart alongside) has been falling from levels near 2.31% since July’17 and has continued to fall further in August contrary to our expectation of a rise towards 2.30%.  After breaking the immediate support near 2.15%, the Spread is headed towards 2.05-2.00% or even lower in the coming weeks.

Overall the yield spread looks bearish towards 1.9% over September and October. This is overall bearish for Dollar-Yen, suggesting a target of 106.

NIKKEI: RESISTANCE AT 21000

The Nikkei has a strong, long term Resistance near 21000 which suggests chances of a sharp fall towards 19000-18000 in the coming quarters or at least a ranged movement within 18000-20000 region.  Given the close relation of Nikkei with Dollar-Yen, if Nikkei falls, Dollar-Yen may not find much scope of rising higher in the coming months.

Although we are not projecting levels below 106 for now, looking at the possible downside in Nikkei we have to be cautious about a break below 106 in Dollar-Yen in the coming months.

QUARTERLY PROJECTIONS

JPY/INR TO REMAIN RANGED BETWEEN 0.55-0.59

JPY/INR has risen sharply to test medium term resistance levels near 0.5950 in line with our expectation of a rise mentioned in our Aug report. A sharp rejection back towards 0.58 is possible from 0.5950 this month. In that case the medium term down channel would continue to hold in the months to come, with chances of a fall to 0.55 also.

We would like to keep open some chances of a break above 0.5950 which if seen could take the currency pair to 0.6050 and even higher towards 0.62.

CONCLUSION

Dollar-Yen could test 106 on the downside over Sep-Oct’17 before moving up towards 112-113 again. Overall 106-115 region is likely to continue for the next 3-6 months.  Our alternative view of Yen strength given in the July report is playing out well where we had mentioned that a fall below 109 could open up possibility of testing 107-105 for the medium term. We stick to this view for now but wait for confirmation below 106 to look at levels near 105.

15-Jan-18: USDJPY 110.70 / EURJPY 135.28

 RECAP

In our Sep’17 report, we had mentioned a possible range of 106-115 for the period of Oct’17 to Mar’18. The actual movement has been between 114.74 (high Nov’17) and 107.32 (low Sep’17) so far, well within our mentioned range.

EXECUTIVE SUMMARY

Dollar Yen is expected to trade in the 110-113 region in the next two months, both being important support and resistance levels.  Thereafter a break on the downside towards 106.00 would be preferred.

LONG TERM: BEARISH FOR 110-108-106

The USDJPY Monthly charts show that the exchange rate is currently trading below very long term resistance coming down from 272 (Oct’82) and while that holds, Dollar-Yen is likely to come off towards 108-106 or lower in the longer term. We do not expect a breach of this resistance just now and prefer Yen strength in the longer run.

The second chart above is the EUR-JPY quarterly candle chart which indicates that the cross-pair is headed towards resistance near 139-140 in the near term. The pair may test resistance in another 1-2 quarters before coming off towards 130-125 or lower in by the Dec’18-Mar’19. Assuming 125 on Euro-Yen and 1.15 on Euro-Dollar, we get a projection of 108.65 on Dollar-Yen. 

MEDIUM TERM: RANGED BETWEEN110-113 FOR A FEW MONTHS

The price range has been narrowing down since almost a year, keeping Dollar-Yen within 115-108 region since Mar ’17 almost. It could remain trapped within this 113-110 region for another couple of months with an outside chance of extension towards 108 on the downside.

RISE IN GOLD COULD FAVOR YEN STRENGTH

The study of historical price movements in Gold (left hand chart above) shows that December tends to form short term lows producing a bounce that lasts for the next 2-3 months. This suggests that the Dec’17 low of 1236.50 can hold at least till March’18 with a possible bounce towards 1400-14500 over the next couple of months.

The second chart on the right shows positive correlation between Gold and the Yen (note that USDJPY is shown in inverted scale on the RHS axis) i.e. as Gold rises, Yen strengthens and vice-versa. As inferred from the first chart, we expect Gold to move up towards 1400-1450 by March’18 thereby giving more weightage to Yen strength  towards 110-108 levels.

DECLINE IN US-JAPAN 10Yr YIELD SPREAD LEADS TO DOLLAR YEN DECLINE

The US-Japan 10YR yield spread and the Dollar Yen has overall shown positive directional correlation as shown in the chart alongside.

Although there has been an instance of divergence in the Oct’14-May’16 period, the overall correlation has resumed after May’16 and we may expect it to hold in the coming weeks too.

The Yield spread (2.47%, shown above) is testing resistance at current levels and is likely to come off from here towards 2.2% in the next few weeks. If that happens, Dollar Yen may come down in the near term towards 110-108 levels. This is also supportive of Yen strength as discussed in the last page.

CORELATION BETWEEN JAPAN CPI (Y/Y%), BRENT CRUDE AND USD-JPY

Our study above indicates broad directional correlation between the log chart of Brent Crude with Japan CPI (left hand chart above) and Dollar-Yen (right hand chart above). The recent rise in Brent from levels near 48.8 to current levels of 69+ is likely to be reflected in the Japan Dec’17 (to release on 26-Jan-18) and Jan’18 CPI figures. The rise in Brent and Japan CPI, if seen in the coming months could overall lead to further Yen strength, as rising inflation could induce a rise in Japanese yields, which would in turn bring the US-Japan Yield Spread lower.  

BRENT STABILITY COULD KEEP YEN STABLE

Crucial resistance is seen near 70 on Brent as seen in the chart alongside.

A corrective fall in Brent from 70 towards 65 in the coming months, could keep Dollar-Yen stable between 110-113 in the next couple of months.

Thereafter, an eventual break above 70 on Brent could push Dollar-Yen lower below 110 in the longer term, through the mechanism described above.

CONCLUSION

We look for consolidation between 110 and 113 for the next couple of months. Thereafter, a sharp rise in Brent above 70 could trigger Yen strength towards 108-106 by September 2018.

05-Mar-18: USDJPY 105.64

RECAP

In our 15-Jan-18 report (USDJPY was 110.70),we forecasted a possible range of 110-113 for the Feb-March period with a possible extension to 108-106.As it turns out, the market has indeed fallen to 106, much faster than the expected 2-3months!

EXECUTIVE SUMMARY

Dollar-Yen has fallen sharply to test crucial support near 105.50-105.00 in Feb. If that holds, some stability is possible in the 105-108 region. Thereafter, an eventual break below 105.00 targeting 103.50 looks likely because the currency pair has broken the long term support near 110-108 coming up from the level of 76 in 2012.

UPTREND SINCE 76 BREAKING?

The monthlychart alongside shows that Dollar-Yen has fallen sharply in the last two months. It has broken below the earlier expected support near 110-108, on the five-year old red dotted trendline coming up from the low near 76 in 2012.

With 108.0-108.5 on the said trendline now likely to provide Resistance, the near to medium term outlook looks bearish for USDJPY. As such, there is now scope for it to move lower towards 103.50 (seen as a possible support) in the next 2-3 months.

NEAR TERM:SUPPORT AT 105.50-00

Looking at the period since 2016 on the Weekly chart, the important support level near 105.50-105.00 has held well on the first testing. If and while it holds in the near term, it could the market up towards 108.0-108.5 in March’18 followed by another downleg towards 103.50 or even lower by April-May’18. However, in case the Support at 105.00 breaks immediately, the fall to 103.50 can happen in March itself.

Between the two, we think that for the next 1-2 weeks could see some sideways ranged movement in the 108.5-105.5 region before coming off to lower levels.

USDJPY PROJECTIONS

While the weekly charts above show a possibleconsolidation within 108.5-105.5 in the 1^st 2-weeksofMarch, the long term monthly chart shows apossibility of testing 103.50 on the downside.Keepingthis in consideration, we project the Dollar-Yen rates till Sep’18. 

RISE IN GOLD ->RISE IN YEN

Historically, Gold has had a close directional correlation with the Yen. Gold rose in the first half of February testing1360 before coming off towards 1320. It is currently ranged between 1310 and 1370, but shows potential for an eventual rise towards 1400.  A break above 1370 is needed as confirmation.

While Gold remains stable in the 1310-1370 region just now, Yen could trade in the 105.5-108.5 zone for the coming weeks. Fresh weakness in US Dollar, if seen, could lead to further upside in Gold towards 1400, thereby leading to strengthening of the Yen towards 103.50 in the longer term.

FALL IN EUR-JPY ->STRONGER YEN

Checking for possibilities of Yen strength on the EUR-JPY chart, we find that the pair has come off from levels near 137.50,just below the trend resistance at 140 and could be breaking below 130. While the current fall sustains, EUR-JPY could be headed towards 127 in March.

Overall while below 140, the trend is likely to remain down and the pair may eventually come off towards 127 in the next couple of weeks. A possible simultaneous test of 1.25 on EUR-USD gives us a target of 101.60 on Dollar-Yen. Even if we take 101.60 be an extremely bearish target, we can infer that the direction for Dollar-Yen is down, not up. 

RISE IN JPYINR TOWARDS 0.63 OR HIGHER?

Yen strength is being seen against the Rupee as well. The JPYINR (0.6166) has risen well above the earlier 0.6050 horizontal resistance and may move higher if the rally sustains. The important Support to watch is now 0.60. If the pair is able to remain above 0.60 in the next couple of weeks, it can move up towards 0.63-0.65 over the next 3-6 months, with some interim corrective dips.

This sharp rise in JPYINR is because of combined strength in the Yen and weakness in Rupee against the US Dollar recently.  A further rise in Yen-Rupee towards 0.65, combined with a target of 66 on Dollar-Rupee gives us a target of 101.55 for USDJPY, close the target of 101.60 from Euro-Yen above.

CONCLUSION

Overall, Dollar-Yen looks bearish while below 108. A break below 105, whether immediately or a little later, can target 103.50 eventually.