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 Monday 01 February 2016

PM Bulletin: Charts for USDJPY

 

 

On Friday the Bank of Japan (BOJ) took interest rates negative.  "What's important is to show people that the BOJ is strongly committed to achieving 2 percent inflation and that it will do whatever it takes to achieve it," BOJ Governor Haruhiko Kuroda told a news conference after the decision. Well good luck with that Mr Kuroda.

I’m not quite sure where all this central bank 2% inflation targeting comes from. I understand why they want inflation – it’s the least painful way of loosening the debt burden – but why 2%? Anyway, it’s beginning to dawn on people (myself included) that this 2% inflation target is inconsistent with “normalised” interest rates of 5% or even 2%. In this low growth world it could be that a normalised interest rate is +/-0.5% or maybe even lower. In other words, let’s not assume that central banks don’t have room to cut further – and that includes the US. If that’s the case then we’re probably experiencing early skirmishes in what could turn out to be all-out currency wars. In other words, rather than acting in a coordinated fashion and taking it in turns to suffer a stronger currency for a while before passing the baton, central banks end up going head-to-head. If so, I’m not sure how it will end but I do know we’ll experience considerably higher volatility in currencies and other financial markets.

As a case in point, we can see the reaction of the USDJPY to Friday’s news. First there’s a Daily Chart which shows support at 116.00 with resistance around 121.77/122.00





We can see the 121.77 resistance level in more detail in the 4-hour chart below. This level marks the 76.4% Fibonacci Retracement of the Dec-Jan sell-off.




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Posted by David Morrison

Tagged: Bulletin PM

Category: PM Bulletin


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