Yen Favoured to Extend Gains

Yen outlook

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The Dollar-Yen exchange rate experienced a sizeable 0.35% decline on Wednesday, taking the pair to 105.90 at the time of publication. Analyst Richard Perry of Hantec Markets says intraday strength is seemingly now a chance to sell.

The selling pressure is gradually taking its toll once more on Dollar/Yen.

Over the past week, a new run of lower daily highs has formed a mini downtrend as intraday strength is seemingly now a chance to sell.

What is also interesting, is that this negative bias is also reflected in the bigger medium term outlook still.

Dollar Yen

Although there is still an argument for this being an 11 week trading range between 104/107, in taking the extreme spikes of recent months, we can still derive a multi-month downtrend, which now comes in below 106.00 today.

Medium momentum indicators are still negatively configured, with MACD lines now drifting lower under neutral.

It leans us towards continuing to believe that near term strength is a selling opportunity.

The hourly chart shows that today’s early tick higher could struggle around 105.30/105.40, whilst it would need a move above 105.60 to improve the near term outlook.

We favour pressure towards 104.90 and given the continued negative medium term bias, any rallies that falter under 106.00 are a good chance to sell towards 104.00 in due course.

Will they? Won’t they?” Uncertainty seems to be a common theme for the key factors driving major markets right now.

It should therefore come as little surprise that major forex and commodities are stuck in a risk-on/risk-off loop, lacking conviction and range bound.

Conflicting daily reports of progress and then lack of agreement on US fiscal support, are dragging the dollar lower then higher, but overall, meaning that a lack of trend is the result. (Pound Sterling Live have issued a new guide on the Dollar's outlook with regard to the 'blue wave' outcome, and have commentary and tables from the likes of Goldman Sachs, Barclays, UBS, JP Morgan and more. Get the guide here.)

The Democrats and Republicans seem to be too far apart for an imminent agreement, and the prospects of something this side of the Presidential election are dwindling. This has pulled the dollar higher and hit risk appetite in the past day or so.

This is also seemingly the case with the Brexit trade deal negotiations between he UK and EU.

As this soft deadline of this weekend’s EU Council meeting approaches, there are signs of progress but seemingly not enough for agreement.

The talks are likely to continue for a number of weeks. A drag on the negotiations will likely weigh on sterling which is becoming increasingly jittery in recent sessions.

Another currency under pressure today is the Aussie, which has reacted poorly to the suggestion from RBA Governor Lowe that yields are too high and that a rate cut to +10bps could be seen.

We have to wait until the US session for any meaningful data on the economic calendar today. There is a clutch of data at 1330BST with a couple of Fed surveys and the weekly jobless numbers.

The New York Fed Manufacturing (Empire State) is expected to slip slightly to +15.0 in October (from +17.0 in September).

Philly Fed Business Index is also expected to fall slightly to +14.0 in October (from +15.0 in September). US Weekly Jobless Claims are expected to improve slightly to 825,000 (from 840,000 last week).

Finally, the EIA Crude Oil Inventories, delayed a day due to Columbus Day on Monday, are at 1600BST and are expected to show a drawdown of -3.4m barrels (after a stock build of +0.5m barrels last week).

Once more there are several Fed speakers to watch out for today, although some repeats of yesterday. FOMC board member Randall Quarles (centrist) is speaking at 1400BST along with the FOMC’s Robert Kaplan (voter, centrist).

Furthermore, the most dovish member of the FOMC, Neel Kashkari (voter, very dovish) speaks at 2200BST.

It might also be interesting to look out for ECB President Christine Lagarde who speaks at 1600BST, although she is due to speak broadly about the world economy, so may avoid ECB specifics.