08 February, AtoZForex.com, London – The Japanese BoJ Governor Kuroda, lead the USDJPY rally after stressing that the central bank needs to be accountable if it does not meet the 2% inflation; a target resulted from a resistance test near Bank of America Merrill Lynch technical level at 120.88.
Although USDJPY did better the day of the BoJ meeting, the pair failed to break above the 200 day moving average. This failure aligned with the failure to break through a long term trend line that is now a resistance area.
In its January 28th report, Bank of America “highlighted multiple trending indicators pointing lower for USDJPY and we’d like the opportunity to sell it on a bounce.”
The signals included a bearish Ichimoku cloud cross, the most bearish technical momentum seen in four years based on RSI and the MACD and signal line both turning negative.
USDJPY at 111.9
From a weekly time-frame, the Yen price closed below major support at 118.40 creating a descending triangle top pattern.
“This pattern estimates USDJPY may trade down to 111.90 with temporary support pocket between 115 – 116,” Bank of America projected, adding that “we maintain our bearish trend view on USDJPY.”
Or is it?
Based on the BoJ commitment, Credit Agricole argues otherwise.
Given that the central bank needs to be accountable if it doesn’t meet the 2% inflation target and that inflation is steadily improving, Credit Agricole has no doubt that the BoJ is indeed ready to turn more aggressive if needed.
“Strongly capped central bank rate expectations should keep the JPY capped,” Credit Agricole pointed.
Moreover, in order to trigger a sustained USDJPY downtrend from the current levels, significantly improving Japanese economy is needed.
Therefore, “as of now we stay of the view that dips in pairs such as USDJPY should be bought,”Credit Agricole conclueded.
Consider reading: Barclays: Fed 2 hike, EURUSD to reverse
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