The BOJ goes from hawk to dove

Me and the Yen just haven’t been good friends lately. It teases me all the time and then turns its head away from me just as I think we’re about to connect with each other. Once again, the Yen had shown plenty of signs that it was going to gain against the dollar but unfortunately, with traders’ expectations for the BOJ to raise rates weakening, the Yen fell and went against my trade.

BOJ governor Fukui said that consumer prices and spending have been weak and said that they have to carefully examine the data at their next policy meeting and have thorough discussions. That’s definitely not good for the Yen, and indicates that the BOJ is turning dovish after all the hawkish talk they had previously done.

Japanese consumers are very tight with their money and it’s very hard for them to get them to spend. Consumer spending, no matter where it is, plays the biggest part in economic growth. Until they start loosening up with the cash, the Yen will continue to stay put.

Coming Up:

US Gross Domestic Product (GDP)
8:30 am ET; 13:30 GMT
Previous= 2.2%; Consensus= 2.2%; Forecast Range= 2.0%-2.4%
This report is the final revisions for the 3rd quarter GDP until the annual revisions next summer. The markets are probably focused more on 4th quarter GDP and any revisions probably won’t affect the market.

US GDP Deflator
8:30 am ET; 13:30 GMT
Previous= 1.8%; Consensus= 1.8%; Forecast Range= 1.7%-1.8%

US Jobless Claims
8:30 am ET; 13:30 GMT
Previous= 304k; Consensus= 310k; Forecast Range= 306k-315k
This is a weekly report so the markets probably won’t react to it, but the labor market is something that the Fed is playing close attention to. Last report we saw a 20,000 drop in unemployment claims to 304k, but this might be due to holiday hiring for temporary Christmas work.

US Philly Fed Index
12:00 pm ET; 17:00 GMT
Previous= 5.1; Consensus= 3.0; Forecast Range= -3.0-10.0
The Philly Fed Index has been quite a market mover in the past few months so pay close attention to this one.

Chart Analysis:

EUR/USD

The Euro has reached its 50 SMA on the 4hr chart and looks like it may head down to 3150 before moving back up. Daily stochastics is still heading up but the 4hr. stochastics still shows room for selling.

GBP/USD

Well the Cable didn’t break 9750 and as I thought, it moved down to its 100 SMA on the 4hr chart at 9630ish. 4hr. stochastics shows room for more selling but daily stochastics is in an uptrend which gives us conflicting signals at the moment. The pair may pierce its 4hr. 50 SMA and move towards 9550, but we’ll probably see it bounce back up after that.

USD/CHF

The Swissy is moving up and is headed for its 200 SMA. A good short term play would be to short it at market (2177) and ride it to 2200 since that is where the 200 SMA is. 4hr. stochastics still shows plenty of room for a rally so I think 2200 is a feasible target. After that, it could go either way since the daily stochastics is heading down. We could either see the Swissy break its 200 SMA and move towards 2250 or we could see it bounce down to 2130-2150.

USD/JPY

The Yen has been a big pain in my butt lately. After teasing me for days, the pair decided to go in the opposite direction of my trade; costing me 50 pips. The rally today has effectively made the bearish hidden divergence worthless since it is now at a resistance point. I still think this pair is headed down but I can’t find a good entry. Daily stochastics has been overbought for a while now and I have a good feeling that it will still drop. Look for the pair to move down towards 117.50.

Conclusion:

There are a bunch of US reports out tomorrow but they probably won’t do much to the market unless we see some extreme numbers. The Philly Fed Index however has been quite a market mover in the last few months so if there is another surprise, look for the dollar to shake and bake!