Aussie, Yen, Pound forex trading strategies on RBA, BOJ, BOE
A lot has happened since we last met my Divas! Bank of Japan (BOJ) introduced negative interest rate policies, the Federal Reserve (FOMC) was kinda worried about the future of the US economy, and the Reserve Bank of Australia (RBA) kept its rates unchanged. Coming up we have a statement from Bank of England (BOE) that could create another spike in the market.
Invest Diva students have received trading strategies throughout the week, but today lets hand pick three of our favorite currencies as they compete on the forex dance floor and take a deeper look at the fundamentals, technicals, and the Invest Diva Diamond altogether.
1- What Does BOJ Negative Interest Rate Mean for JPY?
At Invest Diva we were expecting the Japanese government to do "something" about the strong Japanese Yen, because frankly, they don't like it that much (due to the whole import/ export thing). So when the surprise rate statement came out, the Divas cashed in some pips. For my forex beginners out there, let me explain that in pairs such as USD/JPY where Mr. USA is quoted first and Ms. Japan is quoted second, the USD is the leader. So when the JPY gets weaker, the pair moves up.
But can Ms. Yen remain weak? Now that the BOJ’s surprise dust has settled, some analysts have started speculating about the effectiveness of negative interest rates. For starters, those who are implementing negative interest rates such as the Euro zone, aren’t really showing impressive results. Also, after introducing negative interest rates, what else remains on the table for BOJ? This could very well be their last shot to achieve their 2% inflation target.
Taking a look at Japan's economic situation, the most recent data isn’t really that upbeat, either. In fact, the currently available economic reports are even pointing to a possible slowdown for Q4 2015 GDP. Moreover, the BOJ relies on a “virtuous cycle from income to spending operating in both the household and corporate sectors” in order to push up inflation, but household incomes and spending have been contracting on an annualized basis.
Given all these, the Japanese Yen might have lost her power and the status of "Safe Haven" she was awarded beginning of 2016, but things could quickly change if China dumps another set of surprises on the global economy.
2- Why Did Mr. Aussie Fall on Upbeat RBA Statement?
Our mates down in the Reserve Bank of Australia (RBA) decided to keep their interest rates unchanged at the record low of 2%, issuing more upbeat domestic commentary while shifting to a more dovish global stance. However Aussie traders decided to drop him versus his major dancing partners, namely Ms. USA and Ms. Japan.
This is kinda NZD all over again, except reverse. Three month ago Mr. Kiwi moved up on a New Zealand rate cut. Now Mr. Aussie is moving down on upbeat news. Are our mates in the Land Down Under just having trouble with their navigation, or there is another underlying reason?
The most apparent reason could be the technical resistance that formed a Donald Trump-style wall to prevent the Aussies to move up the border of 61% Fibonacci retracement level at 86.15 in AUD/JPY. For the AUD/USD the resistance wall is built at the 11-year support-turned into-resistance at 0.7125.
Confused? Let's analyze the Invest Diva Diamond:
1- Fundamentals: Australia's fundamentals are rather positive. Japan is rather negative but the dust might have settle for now. We have a ton of data coming out of the US this weak, but so far the outlook has been rather negative.
[BREAKING: Australia's Building Approvals rose on Wednesday while their Trade Balance came in negative. So pretty much a mixed signal. However China's Caixin Services PMI came out better than expected,which pulled Mr. Aussie up on the against his counterparts]
2- AUD/JPY Technicals: From the long term point of view, the pair has broken below a six-year upward channel and below the Ichimoku cloud, which projects two strong bearish signals.
On the daily chart, the pair also remains below Mr. Ichimoku, is challenged by a strong resistance at 86.16 and has formed a bearish engulfing candlestick pattern after an indecisive spinning top; a bunch of bearish reversal patterns.
3- Sentiment: Market participants are as confused as a martini without an olive. By Wednesday's New York session the sentiment shifted from bearish to bullish. however, the upsides for Mr. Aussie may have already been priced in. So we could see further drops depending on upcoming data towards our pivot and support levels mentioned below*.
|Support Levels||Turning Point||Resistance Levels|
3- What's Mr. British Pound Up to?
Mr. British Pound (GBP) started a downfall the second week of December 2015, but after reaching a historic support level versus the USD, he decided to tame himself a bit. Coming up we've got a ton of hot market moving events out of the UK. Mr.Pound might be in for yet another sharp drop, especially if Bank of England (BOE)'s governor Carney keeps his pessimistic tone from his earlier tightening forecasts for mid-2016.
Then again, most of these dovish expectations may have already been priced in since Mr. Carney’s downbeat testimony last month. That would suggest profit-taking might take place after Thursday's rate statement. Keep in mind that the Brits are also very well capable of throwing a surprise party of their own, and decide to highlight the good stuff in the U.K. economy instead. In which case Mr. Pound could jump for joy on the forex dance floor.
We are looking at a week with a high volatility potential. I'd stick to the ranges, and set small entry/ exit orders to make a few pips on the news. I'd wait till the end of the week to come up with new long-term strategies, once our confused currency pairs have found their long-lost GPS.
In any case, set your stop loss and profit targets a little loose from the levels I have mentioned, because the naughty currency pairs sometimes change their mind right before a psychological level just to piss the forex trading crowd off. This technique helps you avoid getting kicked out of your trading position prematurely.
Here are the recommended supports and resistance levels* for short term GBP/JPY forex trading strategies:
|Support Levels||Turning Point||Resistance Levels|
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*Important Note: The support and resistance levels are not suitable for all traders and largely depend on your account size, margin and leverage. Book a private lesson to learn how to personalize your account based on our trading guide.