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Forex Trading StrategiesJPY moves stronger again overnight on promising data from Japan. JPY pairs break many support levels and may head lower.
JPY pairs heating up ahead of US Trade Balance - could we have a wild Friday for USD/JPY?
MAJOR HEADLINES â€“ PREVIOUS SESSION
â€˘ Japan Domestic CGPI for January out at 0.2% vs. 0.1% expected - and 2.7% year-on-year vs. 2.6% expected
â€˘ Japan Export Price Index fell -2.1% in January from a month before, but was up 5.3% year-on-year
â€˘ Japan Import Price Index fell -1.0% in January from a month before, but was up 23.0% year-on-year
â€˘ Australia Home Loans for December rose 0.9% vs. 1.0% expected and Investment Lending increased 6.8% from a month before
â€˘ Japan Overall Household Spending fell -0.7% in December vs. +1.0% expected
â€˘ Japan Machine Orders for December out at 6.8% vs. 1.5% expected
the JPY turned sharply stronger overnight, pushing USD/JPY back below 118.00 and EUR/JPY as far as 141.35 as of this writing
THEMES TO WATCH â€“ UPCOMING SESSION
Very interesting developments overnight in Asian markets, with Japanese interest rates making a decisive move higher - as 10-year JGB interest rates close in on 18-month highs on the inflation data. Credit for the move was given to the inflation data but also the very strong Machine Orders number. The JPY turned suddenly stronger again as well, and the momentum change and stochastics on our charts have us looking for downside again in JPY pairs - whether USD/JPY, AUD/JPY or EUR/JPY.
With the US Trade Balance up today, we could have pretty nervous markets in the early North American session. The Trade Balance number for December is expected to show a shortfall of -$65.0 Billion, which would be the third worst level ever. If this number comes in as expected, the total US Trade Deficit for 2005 will come in at a whopping 725+ Billion - a nasty reminder to those who only follow the interest rate picture for determining whether to buy the USD. Research from major banks has pointed out that the correlation between interest rates and currency market moves was at an all time high in 2005 - and this is a theme we have been covering a great deal lately, I'm sure you have noticed. But it is perhaps time for a cycle change as we move close to the end of the interest rate hiking regime where the moves in rate markets no longer matter to the same degree as before.
We'll look for a few days in a row where several currency pairs completely ignore moves in interest rate markets as a sign that the Great Interest Rate Differential Obsession of 2005 is dead. Stay tuned.
Note: the support/resistance levels used in the matrixâ€™s of this document are levels derived from yesterday high, low and close. Reference in the text to other support/resistance levels will occur.
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