Central Banks Take Coordinated Action
Joe Perry March 16, 2020 9:46 PM
USD/JPY will be interesting watch as DXY has also become a flight to safety.
As central banks around the world have acted to stem the economic fallout from the global threat of the coronavirus, one of the most volatile currency pairs has been the USD/JPY. As you may be aware the US Federal Reserve has taken unprecedented emergency measures by cutting interest rates to a 0-25% range and has announced a new $700B QE program.
The BoJ has taken measures of their own by doubling its ETF target to JPY 12 trillion! In addition, BoJ Governor Kuroda indicated that they will increase the amount of corporate bonds they will be buying. They have also introduced a new zero rate loan facility.
Some of these moves appear to be taken as a sign of desperation central bank, as stock markets around the world are tumbling and US stocks open limit down. As a result, USD/JPY has been moving lower in a flight to safety move. On Friday, the pair reached as high as 108.50. However, on the open the pair gapped lower with stocks and has traded as low as 105.15.
On a daily timeframe, we can see that after spiking through the 61.8% Fibonacci retracement level from the February 20th highs to the March 9th lows near 108.04, price has moved 300 pips lower today into a band of support between 105.50 and 105.00.
Source: Tradingview, City Index
On a 240-minute timeframe, we can see that the upward move has created a channel and price is currently threatening to break lower. However, this is NOT a flag formation as price has retraced too much off the lows. In order to be considered a flag formation, price should not retrace more than 50% of the move. If price does break lower from here, the next support isn’t down until 103. Resistance is up at the highs of the day near 107.50, then Friday’s highs near 108.50.
Source: Tradingview, City Index
The range on the day for USD/JPY is already over 225 pips and the pair is down -2.25% (that is a large move in percentage terms for a currency pair). However, the RSI on both the daily and the 240-minute chart is in neutral territory. Therefore, price still has room to run to the downside.
This will be an interesting pair to watch going forward as we have seen over the last few days that DXY has also become a flight to safety. If traders feel that the US Dollar is a “safer” currency than JPY, the pair could reverse and trade higher, even if stocks continue lower!
This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.
GAIN Capital Singapore Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the GAIN Capital group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), GAIN Capital Singapore Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact GAIN Capital Singapore Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.
In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither GAIN Capital Singapore Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.
GAIN Capital Singapore Pte. Ltd. is not under any obligation to update this report.
Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.
Cryptocurrencies are not legal tender currency and trading of derivatives on Cryptocurrencies are currently not covered under any regulatory regime in Singapore. Consequently, investors should be aware they do not have protection under the Securities and Futures Act (Cap. 289). Please ensure that you are fully aware of the risks.