Yen Committed to a Direction, While Others Not… Yet

Market overviews

Overall, the markets in the last full trading week of May was rather mixed. New Zealand Dollar surged initially after hawkish RBNZ. But it failed to extend much gain from there, even though it still ended as the strongest. It looked like Dollar was ready to turn around after strong inflation reading, but it also struggled to close firm. Sterling was the relatively steadier one, as second strongest, on reopening optimism. Yen’s selloff was much clearer on the other hand, while Aussie was dragged down by selling against Kiwi. Swiss Franc was also weak, as third worst performer.

In other markets, US stocks and yields were bounded in established range. DAX attempted to extend record run but lacked follow through momentum. Nikkei staged a strong rebound, but couldn’t recapture 30k handle yet. Gold struggled to get rid of 1900 handle decisively, despite extending recent rise. WTI crude oil failed to break through 67.83 resistance firmly. Bitcoin was extending near term sideway consolidation. We’d see if there would be some more committed moves in June.

Kiwi failed to extend post RBNZ gain against Dollar

New Zealand Dollar ended as the strongest one last week, after RBNZ indicated that it could be ready for a rate hike around Q3 next year. Yet, the sustainability of the rally was rather disappointing. NZD/USD just managed to breach 0.7304 resistance to 0.7315 briefly, and retreated back into familiar range.

Nonetheless, further rally is still in favor as long as 0.7153 support holds. Above 0.7315 will extend the rise from 0.6942 to retest 0.7463 high. However, break of 0.7153 support will put the pair back below 55 day EMA. Corrective pattern from 0.7463 could have then started another falling leg, back to 0.6942 support and possibly below.

Aussie down but some support lies ahead

AUD/NZD’s decline was much more committed, but that’s more due to Aussie’s weakness, partly due to pull back in iron ore prices, and return to lockdown in Melbourne. But more importantly, RBA has been very clear that the conditions for a rate hike is unlikely to be fulfilled until 2024 at the earliest. We’re not expecting RBA to change this guidance in the upcoming meeting this week. Fall from 1.0944 is seen as the third leg of the pattern from 1.1042. As long as 1.0702 support turned resistance holds. AUD/NZD would be targeting 1.0415 support next.

AUD/CAD’s decline from 0.9991 resumed last week and edged lower to 0.9296. While further fall is mildly in favor, we’d maintain that strong support would likely be seen at 0.9247 cluster support to bring bullish reversal. The level coincides with 38.2 retracement of 0.8058 to 0.9991 at 0.9253, and 100% projection of 0.9991 to 0.9488 from 0.9757 at 0.9254. Break of 0.9407 resistance will turn near term outlook bullish and help Aussie rebounds elsewhere.

CAD might be ready for a correction

However, even if AUD/CAD bounces, that might be more due to a reversal in the Loonie instead. We’re still monitoring if USD/CAD could reverse from the current 1.2048/61 cluster support zone. Also, CAD/JPY is now close to key resistance zone at 91.62, 61.8% projection of 77.91 to 88.28 from 85.40 at 91.80. Bearish divergence condition is also seen in daily MACD. A break below 89.55 support should at least indicate short term topping, and bring correction back to 85.40/88.28 support zone.

USD/JPY breaks out from near term ranging, targeting 110.95 high

Yet, the broad based weakness in Yen could help floor Yen crosses despite some selloff. In particular, USD/JPY’s break of 109.77 resistance suggests resumption of rise from 107.47 to retest 110.95 high. Repeated support from 55 day EMA affirms near term bullishness. Break of 110.95 will target 111.71 resistance next.

Dollar index bullish reversal not happening yet

Talking about Dollar, the break of 1.2160 support in EUR/USD was rather disappointing, as it didn’t last long. The conditions for near term reversal in Dollar index are there. It’s reasonably close to 89.20 low while daily MACD is turning up. Break of 90.90 resistance will start the third leg of the pattern from 89.20, and target 93.43 resistance. But before that , DXY could still have another take on 89.20 low first. That would then be accompanied by another rise in EUR/USD towards 1.2348 high.

GBP/JPY’s up trend continued last week and hit as high as 156.05. Initial bias stays on the upside this week for 156.69 long term resistance. Sustained break there will carry larger bullish implications. Next target is 61.8% projection of 133.03 to 153.39 from 149.03 at 161.61. On the downside, break of 153.81 support is needed to indicate short term topping. Otherwise, outlook will remain bullish in case of retreat.

In the bigger picture, rise from 123.94 is seen as the third leg of the pattern from 122.75 (2016 low). Focus is now on 156.59 resistance (2018 high). Sustained break there should confirm long term bullish trend reversal. Next target is 61.8% retracement of 195.86 (2015 high) to 122.75 at 167.93. On the downside, break of 149.03 support is needed to be the first sign of completion of the rise from 123.94. Otherwise, outlook will remain bullish even in case of deep pull back.

In the longer term picture, the strong break of 55 months EMA was an early sign of long term bullish reversal. Firm break of 156.69 resistance should now confirm the start of an up trend for 195.86 (2015 high).