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EUR/USD breaks out of 7 months pattern

October 29, 2015 in Chart Alert

In the “Alerts – Observations – Watch Outs” sub-forum of our Forex forum section we had been talking about the ascending triangle pattern of EUR/USD. In the last alert we had indicated the following:

“Any decisive break below 1.1060 should extend the decline to test the 1.1000 to 1.1020 support first and then possibly more. However, the psychological aspects of approaching parity level may cause some volatile upward moves and hence caution is required.”

The pair had moved the way we had indicated. During last week the pair had broken the support of the base of the triangle slightly. However, this week’s moves brought a decisive break from the pattern. Not only that but that previous support level acted as resistance.

EUR/USD breaks out of 7 month chart pattern.
Please note that for past 7 months the price action was contained in this pattern. We now expect a test of 1.0809 first and if that support fails then further decline towards the low of 1.0470 will be expected.

And upside will be expected to be limited to 1.1105 to 1.1135 resistance zone.

Dollar Strength

October 2, 2015 in Forex Analysis

The U.S. dollar has remained very strong in 2015 as the U.S. economy has expanded at a faster rate than many of its competitors. Some countries have encouraged weakness in their respective currencies and the U.S. dollar has been a major beneficiary. The greenback is the world’s dominant currency and is close to a 12-year high against both the Euro and the Yen. Against emerging market currencies and commodity-based currencies the U.S. dollar has surged in 2015. In 2013, one U.S. dollar was worth less than one Canadian dollar – today it is over 30% higher,  one U.S. dollar is currently worth $1.33 CAD. It is a similar situation with the Australian dollar as the collapse in commodities and concerns about the Chinese economy has resulted in a sharp fall in the Australian dollar.  In 2013, one Australian dollar was worth more one U.S. dollar – today, approximately 70 U.S. cents are equivalent to one Australian dollar.

The Brazilian Real has collapsed in recent years against the U.S. dollar as the economy in the South American country has been very weak. Between 2011 and 2013 one U.S. dollar was trading between 1.50 and 2.45 Real. Today, one U.S. dollar is equivalent to approximately 4 Real. The collapse in the Real has made exports to the U.S. extremely competitive but imports from U.S.A are more than twice as expensive from 2013 levels.

The Euro’s problems have been well documented over the last year or so. The Euro has lost more than a quarter of its value against the U.S. dollar, in May 2014 it was trading at $1.40, today it is approximately $1.10 and a return to parity is within the realms of possibility in the not too distant future as quantitative easing puts pressure on the Euro.

Over the last couple of years, the Japanese government through Abenomics has encouraged a sharp fall in the Japanese Yen to boost the economy through exports. The Yen which was trading below 80 Yen in 2013 against the U.S. dollar is now trading above 120 Yen.

Sterling has also weakened against the U.S. dollar over the past 12 months but not to the same extent. In July 2014, Sterling was trading above $1.70. Today it is approximately 10 per cent weaker with cable trading today  at $1.5150.

Focus Remains on the Downside for GBP/USD

October 1, 2015 in Chart Alert

GBP/USD’s fall from 1.7192 had completed 50% retracement and refused to go any further. The second wave of downward move seems to have 38.2% retracement level as resistance instead of support.

GBP/USD after 50% retracement

The upward move from 1.4567 had reflected the psychological support of 1.4500 range. However, the pair could not break the psychological barrier of 1.6000 ranges. The fall from there brought the aid of 1.5500 psychological support, which remained in place for 8 weeks but then the breakout was witnessed.

The bearish momentum targeted the previous support of the low of the week of may 31st i.e. 1.5170. Please check the nice little spinning tops candle of that week in the following chart. This support was very critical as it also brings in the psychological support of approaching 1.5000 ranges. However, the support did not sustain and that makes the bearish out look quite strong.

GBP/USD weekly chart with psychological resistance and supports.

Let’s did a bit deeper and check the price-action of last 15 years.

Historical GBP/USD chart of past 15 years.

It is evident from the chart that since 2009 the price-action has been in a volatile sideways mode and the pair clearly failed to take out the year 2005’s strong support turned resistance.

There was a fake-out of this sideways movement during 2013 which had resulted in a strong upward jump but the price again failed to take out the above mentioned support turned resistance and the subsequent fall again broke the rectangle chart pattern. The above chart speaks for itself and indicates why the focus remains on downside now.

Let’s have another look on the same chart but from a different angle:

GBP/USD monthly chart with triangle chart pattern.

The triangle pattern on the above monthly chart had a breakout which did not sustain. The decline has cause a downward breakout of the support and that support seems to be acting as resistance now.

Let’s get back to the weekly chart once again:

GBP/USD chart with gartley pattern

The above chart shows an approximate Gartley pattern on the weekly chart. It’s not an ideal one as the retracement levels are not ideal to the Gartley pattern but then who says that the world is ideal. Will this Gartley cause the trend resumption to target 1.4500 ranges once again? Well, possibilities do exist but first we expect the pair to target 1.5055. If 1.5000 support fails then decline should extend first towards 1.4800 and then possible 1.4580.

On the upside we expect resistance near 1.5355 and any break above that will start neutralizing the above outlook. Please note that this resistance is derived from the daily chart.

15 years of EUR/USD in Nut & Shell – Expect Further Decline

September 28, 2015 in Chart Alert

Past 8 months’ price action of EUR/USD has seen an ascending triangle formation emerging up. Now as far as any triangle chart pattern is concerned, a break out can be on either side. However, we are in favor of a downward breakout and some further decline.

The first reason is that the 17 months’ fall of the pair completely failed to even complete the 38.2% Fibonacci retracement level. We will come to the second reason shortly but before that, Yes, we are already on short-selling side.

Check the weekly chart of EUR/USD covering all the above facts including our entry for the short position.

EUR/USD weekly chart with ascending triangle formation.

Now let’s go a bit more into the past to see what we were talking about as the second reason. The following EUR/USD chart is the monthly chart of past 15 years.

EUR/USD monthly chart of past 15 years with descending triangle pattern.

It is quite evident that the resistance faced during June 2003 (yes, over 12 years back – the first red arrow on left hand side) had turned into a strong support zone and that remained in place for over 11 years.

That 11 years old support was  broken during January 2015. and since then that support seems to have turned into a resistance zone.

Let’s move on to another point and that is the descending triangle pattern which had been in place since June 2008 i.e. well over 6 years. The breakout of January 2015 was a break of a pattern which had been in place for over 6 years and that calls for some extended stay below that pattern. The support turned into resistance also favors this logic.

Please note that this alert is not for very short-term trades as we are talking about years of price-action and in such case a couple of hundred pips here and there are not even peanuts. Any upside is expected to be limited to be up to 1.1880 in the mid-term but for the immediate future we expect resistance below 1.1525 and with that a decline first towards 1.1090 and then some more.

The psychological support zone of the parity (EUR/USD =1)  seems to be the only friend of the euro right now but will that hold. Do share your comments, please.

GBPCHF Breaks Important Support

August 24, 2015 in Chart Alert

GBP/CHF broke below the support of the upper edge of daily Ichimoku cloud today. This move certainly makes the near term bearish sentiments stronger and overall we expect further pull back towards downside.

GBP/CHF breaks below the support.

However, a couple of points to be kept in mind are as follows:

  • The fall from 1.5411 can be attributed to the psychological resistance of the approaching 1.5500 level and hence can be considered as a natural move.
  • The current price is near the 38.2% retracement support of the move from 1.3818. This support, which was at 1.4802 was skightly breached but a decisive breakout has still not taken place.
  • The current price is also slightly above the previous strong support on 1.4791.

GBP/CHF against upcoming support levels.

Any decisive break below 1.4791 should extend the fall, first towards 1.4660 and then possibly 1.4614/1.4620 support zone of the 50% retracement support zone. Here the psychological support of the approaching 1.4500 ranges should also come into the picture.

On the upside, we expect the first resistance at or below 1.4920. Any break of this resistance should delay any further fall. However, in such case also, we would expect any recovery to be limited to 1.5125.

GBP/CHF Chart showing the resistance levels.

Currency Speculators raised US Dollar bullish positions higher for 4th week

October 19, 2014 in Forex Analysis



The latest data for the weekly Commitment of Traders (COT) report, released by the Commodity Futures Trading Commission (CFTC) on Friday, showed that large traders and currency speculators pushed their overall US dollar bullish bets higher last week for a fourth straight week and to the highest overall level since May 2013.

Non-commercial large futures traders, including hedge funds and large speculators, had an overall US dollar long position totaling $43.04 billion as of Tuesday October 14th, according to the latest data from the CFTC and dollar amount calculations by Reuters. This was a weekly change of +$2.13 billion from the $40.91 billion total long position that was registered on October 7th, according to the Reuters calculation that totals the US dollar contracts against the combined contracts of the euro, British pound, Japanese yen, Australian dollar, Canadian dollar and the Swiss franc.

The US dollar’s fourth week of gains increased the aggregate bullish position to a new highest speculative level since May 28th 2013 when the total long position was +$43.77 billion. The dollar’s position continues to be very strong and each of the tracked currencies have a net bearish position versus the dollar for a second straight week.


Overall Speculative Net Contracts


In terms of total speculative contracts, overall US dollar contracts rose for a fifth straight week last week to +331,464 contracts as of Tuesday October 14th. This was a change by +17,586 contracts from the total of +313,878 contracts as of Tuesday October 7th. This total US dollar contracts calculation takes into account more currencies than the Reuters dollar amount total and is derived by adding the sum of each individual currencies net position versus the dollar. Currency contracts used in the calculation are the euro, British pound, Japanese yen, Swiss franc, Canadian dollar, Australian dollar, New Zealand dollar and the Mexican peso.


Major Currency Weekly Levels & Changes: All currencies have net bearish position versus the USD for 2nd week


Overall changes on the week for the major currencies showed that large speculators raised their bets last week in favor of just the Japanese yen and the Mexican peso while decreasing weekly bets for the euro, British pound sterling, Swiss franc, Canadian dollar, Australian dollar and the New Zealand dollar.

Notable changes on the week for the Major Currencies:

  • Euro positions fell for a 2nd week and to the lowest level since Sept 9th. The EURUSD exchange rate, however, has stabilized over the past 2 weeks and ended the week with over a 1% rise and above the 1.2750 level
  • British pound sterling positions slightly dipped further on the bearish side last week for a 2nd week. The GBPUSD spot exchange rate has also clawed back against the USD to trade above the 1.6000 level and gained for a 2nd week
  • Japanese yen bets rose last week for a 2nd week and sit close to the -100,000 level. The dollar strength that pushed the USDJPY spot rate to the 110 area stalled over the past few weeks and the USDJPY ended last week under the 107 level
  • Swiss franc bets fell last week after 2 weeks of gains. The Franc positions remain on the bearish side for a seventeenth straight week while the USDCHF exchange rate closed the week lower and trades around the 0.9460 level
  • Canadian dollar positions fell sharply lower last week and declined for a fifth week with positions at the most bearish level since June. The USDCAD exchange rate ended the week above at the 1.1200 major level, up approximately 75 pips from the previous week’s close
  • Australian dollar net positions dropped sharply again last week and fell for a sixth week to a bearish level of -30,271 contracts – the most bearish Aussie position since March. The AUDUSD finished the week modestly higher (+0.66%) to trade back above the 0.8700 level
  • New Zealand dollar net positions declined for a 3rd week last week to the most bearish level since July 2013. Despite the spec position decline, the NZDUSD rose for the week by approximately +1.38% to end the week around the 0.7920 level
  • Mexican peso positions rose last week after five straight weeks of declines. The peso spec positions remain on the bearish side for a 3rd week at -5,763 contracts


This latest COT data is through Tuesday October 14th and shows a quick view of how large speculators and for-profit traders (non-commercials) were positioned in the futures markets. All currency positions are in direct relation to the US dollar where, for example, a bet for the euro is a bet that the euro will rise versus the dollar while a bet against the euro will be a bet that the dollar will gain versus the euro.

Please see the individual currency charts and their respective data points below.

Weekly Charts: Large Speculators Weekly Positions vs Currency Spot Price



Last Six Weeks data for EuroFX futures

Date Open Interest Long Specs Short Specs Large Specs Net Weekly Change
09/09/2014 484306 59376 216881 -157505 3918
09/16/2014 397652 79552 216701 -137149 20356
09/23/2014 398937 60654 202619 -141965 -4816
09/30/2014 409986 67030 204555 -137525 4440
10/07/2014 425656 61467 207679 -146212 -8687
10/14/2014 434873 60158 215500 -155342 -9130

British Pound Sterling:


Last Six Weeks data for Pound Sterling futures

Date Open Interest Long Specs Short Specs Large Specs Net Weekly Change
09/09/2014 256591 81330 54603 26727 17279
09/16/2014 134560 55617 62198 -6581 -33308
09/23/2014 134061 53691 54741 -1050 5531
09/30/2014 132369 54243 50654 3589 4639
10/07/2014 129666 46503 47578 -1075 -4664
10/14/2014 138471 43116 45953 -2837 -1762

Japanese Yen:


Last Six Weeks data for Yen Futures

Date Open Interest Long Specs Short Specs Large Specs Net Weekly Change
09/09/2014 255624 17280 117953 -100673 16635
09/16/2014 208235 37617 120799 -83182 17491
09/23/2014 222214 28391 133813 -105422 -22240
09/30/2014 239477 29910 150788 -120878 -15456
10/07/2014 223255 24837 137388 -112551 8327
10/14/2014 212420 22839 123986 -101147 11404

Swiss Franc:


Last Six Weeks data for Franc futures

Date Open Interest Long Specs Short Specs Large Specs Net Weekly Change
09/09/2014 77317 9856 23681 -13825 -658
09/16/2014 54929 12889 24285 -11396 2429
09/23/2014 52124 8354 21729 -13375 -1979
09/30/2014 57223 11998 24555 -12557 818
10/07/2014 60516 15509 27928 -12419 138
10/14/2014 60968 11113 28666 -17553 -5134

Canadian Dollar:


Last Six Weeks data for Canadian dollar futures

Date Open Interest Long Specs Short Specs Large Specs Net Weekly Change
09/09/2014 102951 33400 21770 11630 2439
09/16/2014 110275 37347 29803 7544 -4086
09/23/2014 76530 27673 24609 3064 -4480
09/30/2014 89376 33014 37580 -4566 -7630
10/07/2014 100900 39174 46626 -7452 -2886
10/14/2014 104060 35688 51855 -16167 -8715

Australian Dollar:


Last Six Weeks data for Australian dollar futures

Date Open Interest Long Specs Short Specs Large Specs Net Weekly Change
09/09/2014 126831 73321 32092 41229 -7818
09/16/2014 97839 55588 33448 22140 -19089
09/23/2014 105756 47187 38840 8347 -13793
09/30/2014 118488 43193 45210 -2017 -10364
10/07/2014 129561 31601 58087 -26486 -24469
10/14/2014 115941 14367 44638 -30271 -3785

New Zealand Dollar:


Last Six Weeks data for New Zealand dollar futures

Date Open Interest Long Specs Short Specs Large Specs Net Weekly Change
09/09/2014 24920 14369 4847 9522 -650
09/16/2014 16050 9814 8694 1120 -8402
09/23/2014 16146 9779 7938 1841 721
09/30/2014 18209 10092 10028 64 -1777
10/07/2014 19214 10052 10152 -100 -164
10/14/2014 21317 9171 11555 -2384 -2284

Mexican Peso:


Last Six Weeks data for Mexican Peso futures

Date Open Interest Long Specs Short Specs Large Specs Net Weekly Change
09/09/2014 155265 71021 32503 38518 -646
09/16/2014 134445 69430 47384 22046 -16472
09/23/2014 151319 58278 47774 10504 -11542
09/30/2014 148678 48864 56178 -7314 -17818
10/07/2014 147139 43781 51364 -7583 -269
10/14/2014 139036 39798 45561 -5763 1820

*COT Report: The weekly commitment of traders report summarizes the total trader positions for open contracts in the futures trading markets. The CFTC categorizes trader positions according to commercial hedgers (traders who use futures contracts for hedging as part of the business), non-commercials (large traders who speculate to realize trading profits) and nonreportable traders (usually small traders/speculators).

The Commitment of Traders report is published every Friday by the Commodity Futures Trading Commission (CFTC) and shows futures positions data that was reported as of the previous Tuesday (3 days behind).

Each currency contract is a quote for that currency directly against the U.S. dollar, a net short amount of contracts means that more speculators are betting that currency to fall against the dollar and a net long position expect that currency to rise versus the dollar.

(The graphs overlay the forex spot closing price of each Tuesday when COT trader positions are reported for each corresponding spot currency pair.) See more information and explanation on the weekly COT report from the CFTC website.

All information contained in this article cannot be guaranteed to be accurate and is used at your own risk. All information and opinions on this website are for general informational purposes only and do not in any way constitute investment advice.

Article by CountingPips.comForex Apps & News

Weekly Technical Strategist On EURUSD

October 12, 2014 in Forex Analysis

EURUSD: Recovers Higher On Correction

EURUSD: Except EUR returns above the 1.2791 level, it faces a possible reversal of its corrective recovery triggered the past week. Support lies at the 1.2550 level where a break will expose the 1.2500 level. Below here will pave the way for a move lower towards the 1.2300 level. If this continues, expect further downside to occur towards the 1.2250 level. On the upside, resistance lies at the 1.2791 level where a break will aim at the 1.200 level, its psycho level followed by the 1.2650 level. Further out, resistance comes in at the 1.2700 level. All in all, EUR remains biased to the downside in the medium term.


Daily Technical Strategist On AUDUSD

September 26, 2014 in Forex Analysis

AUDUSD: Price hesitation Sets In.

AUDUSD: Though seeing a price hesitation during Friday trading session today, it continues to maintain its broader medium term downside pressure. Support lies at the 0.8750 level. A cut through here will turn attention to the 0.8700 level and then the 0.8650 level where a violation will set the stage for a retarget of the 0.8600 level. On the upside, resistance resides at the 0.8850 level where a breach will aim at the 0.8900 level. Above that level will set the stage for a run at the 0.8950 level with a cut through here resuming its broader uptrend towards the 0.9000 level. All in all, the pair faces further downside risk on correction.

Special Focus On EURJPY

September 25, 2014 in Forex Analysis

EURJPY: Extends Corrective Pullbacks

EURJPY- With the cross vulnerable and targeting further downside, more decline is envisaged. Support comes in at the 138.50 level where a break will aim at the 138.00 level. A break will target the 137.50 level with a breach turning focus to the 137.00 level. Below here will aim at the 136.50 level. On the upside, resistance resides at the 140.00 level where a break if seen will threaten further upside towards the 140.50. Further out, resistance resides at the 141.00 level where a break will aim at the 141.50. All in all, the cross faces correction weakness risk.


Trading Opportunities with USD/JPY in the Coming Days

September 23, 2014 in Forex Analysis

As we had mentioned during the first week of this month in an USD/JPY update titled “USD/JPY – Is 110 still a dream or becoming a reality?“, repeating the same thoughts which were voiced almost 9 months back in another post titled “USD/JPY 2014 Outlook – Is 110 a question of “when” not “whether”?“, the currency pair made a move to test the key psychological level of 110.00 on September 18th. The price touched a high of 109.46 on that day.

USD/JPY losing the momentum ahead of 110.00.

The resistance faced 54 pips ahead of 110.00 is quite natural. After many year’s movement above 100.00, the break below this key psychological level had come during 2008. However the break was brief and USD/JPY had jumped up very strongly to test 110.00 level after that. The failure had taken place at 110.68 and since then the great downfall had started which saw the pair to touch 75.36 during October 2011. The price-action had continued to be below 100.00 till the end of April 2013 i.e. the price action practically had stayed below 100.00 since October 2008 or four and a half years. Once exception during this time was during April 2009 when a slight break over 100.00 took place with a failure at 101.45.

Let’s see the following chart to check the price movement of USD/JPY over the past decade:

USDJPY historical chart from 2001to September 2014.

What happened after the break over 105.00?

After such a long bearish trend, when the pair had, at last broke over 100.00 and then touched 105.44 during the end of December 2013, it remained range bound since then, for seven and half months. The range was between the two critical psychological levels of 100.00 and 105.00.

The range bound movement of USDJPY between 100.00 and 105.00.

Trading Strategies

As mentioned above, 110.00 should now act as a major psychological resistance, especially after years of strong bearish trend. The price action of past 4 trading days, after hitting the high of 109.46, clearly indicates the loss of momentum and the fear of 110.00. Considering this we would expect an extended range bound movement between 105.00 and 110.00. On the upside, even if 110.00 resistance fails, we would expect the gains to be limited below 110.50. This represents a good trading opportunity if the risk appetite allows a stop-loss in the range of 110.00 to 110.50.

The possible profit-taking targets could be as follows:

1) 107.40: This level was a resistance for a short range bound movement during the middle of this month. This resistance is expected to turn into the first level of support now.

2) 106.80/106.85: This range represents the support level of the above mentioned range-bound moves and also coincides with the support of the Kijun line of daily Ichimoku cloud. The psychological support of approaching 105.00 ranges should also start coming into the picture from here.

3) 105.30 to 105.80: The support range represents the support range of Kijun line and Tenkan line of the weekly Ichimoku cloud. Here the strong psychological support of 105.00 will be full in force. However, the possibilities of a dip into 104.00 range can also not be ignored

Overall, till any sustained break over 110.50 does not take place, USD/JPY presents a good opportunity of repetitive short-selling in a price band near 110.00 i.e. 108.60 to 110.00 and then buying in a price band near 105.00. If the history of what happened for over 7 months between 100.00 and 105.00 repeats itself then the levels of 105.00 and 110.00 can bring some handsome gains by this range trading.

Let us have a look at the daily and weekly Ichimoku cloud charts of USD/JPY:

Daily Ichimoku cloud of USD/JPY

USDJPY with daily Ichimoku cloud.

The above chart also shows how the previous support level is coinciding with the mentioned support of Tenkan line.

Weekly Ichimoku cloud of USD/JPY

weekly Ichimoku cloud.

Special Focus On AUDUSD

September 15, 2014 in Forex Analysis

AUDUSD: Halts Weakness, Looks To Recover Higher.

AUDUSD: With the pair halting its past week sell off during Thursday trading today, we envisaging a corrective recovery higher in the days ahead. Support lies at the 0.8983 level. A cut through here will turn attention to the 0.8950 level and then the 0.8900 level where a violation will set the stage for a retarget of the 0.8850 level. On the upside, resistance resides at the 0.9108 level where a breach will aim at the 0.9150 level. Above that level will set the stage for a run at the 0.9200 level with a cut through here resuming its broader uptrend towards the 0.9250 level. All in all, the pair faces further downside risk.


USD/JPY – Is 110 still a dream or becoming a reality?

September 3, 2014 in Forex Analysis

It was December 28, 2013 i.e. over 8 months back when we had indicate that the year 2014 should see USD/JPY to target 110.00. Well, the pair failed to move beyond 105.44 and had fallen to 100.75. The psychological support of 100.00 ranges had come at rescue but since then the currency pair had been range bound. The maximum it achieved was 104.13 since then. It has been 8 months of classical support and resistance of two major psychological levels, namely 100.00 and 105.00. The long wait ultimately paid off and the price-action did not only break above the resistance of 104.13 but took out 105.00 to go as high as 105.33.

USD/JPY breaks out of the range to indicate returning bullish sentiments - Weekly chart

Consumption tax dilemma and other economic factors

One of the major change during 2014 was the consumption tax hike from 5% to 8% in Japan. This hike was the first hike since 1997 i.e. 17 years. Anxieties were in place before the decision and remained in place after the decision also. Everything going expensive by 3% had to affect the consumption and hence economy. On the other side the plans that there would be another hike of consumption tax during 2015 may counter the effect to some extent, especially for major purchase decisions as the date for the next hike gets closer. If consumers know that prices are going to go up further then they would tend to make any large purchasing decisions sooner. Such a scenario might have added to the strength of the Japanese yen to bring USD/JPY down but a delay in the decision to implement the tax hike should keep downward pressure on the yen.

Let’s have a look on the the effects on the strength of the Japanese yen after the previous hike of the consumption tax during 1997. The following chart indicates that the Japanese yen had in fact strengthened, instead of weakening, after the hike of 1997 and USD/JPY had fallen sharply before it went up very strongly to go as high as 144.77. We had covered this fact in the previous update which we have mentioned above.

This time the effect of the change in tax did not really affect the strength of the yen and the pair had kept it self in a range. As reported by Reuters yesterday that the Prime Minister Abe has been advised to delay the next hike. The economy certainly did not show bullishness since the tax was increased on April 1st, 2014.

USD/JPY price action after the previous consumption tax increase.

Let’s have a look on the recent economic releases from Japan:

1) Year-over-year overall household spending declined by -5.9% in July. The result was worse than the data of June where the decline was -3.0%.

2) July 2014 also saw a decline in national consumer price index from previous 3.6% to 3.4% on year-over year basis.

3) Unemployment increased from 3.7% to 3.8%.

4) Preliminary data indicated that the industrial production went drastically down to -0.9% on year on year basis in July. June had shown an increase of 3.1%.

5) Year-over-year change in the retail trade was positive. The retail trade grew by 0.5% in July against a drop of -0.6% in June.

6) Housing starts saw a drop of -14.1% in July as compared to the same month of 2013. This is showing an increase in negative momentum as the month of June had a drop of -9.5%.

7) The growth in the capital spending in quarter 2 was down to 3.0% from quarter 1’s 7.4%.

8) August 2014 saw a drop in the vehicle sales. The change was -5.0% as compared to the vehicle sales in August 2013.

What to expect from USD/JPY

From pure price-action point of view and also considering the break of 105.00 psychological level for the second time, it is expected that this time the price will sustain over 105.00 to go for further gains.  The previous move to 105.44 had completed the 61.8% retracement of the fall from 124.16 to 75.36. If it was just a case of upward consolidation then the price-action should have reversed back. However the continuous support over 100.00 and another break over 105.00 suggests that the uptrend has not ended.

USD/JPY Historical chart showing that pair had broken over 61.8% retracement for the fall from 124.16.

The increase in the unemployment rate, the drop in the industrial production and other weak economic reports from Japan also go in the favor of this outlook. While saying this, we will expect the the resistance to hold for sometime in the range of 105.44 to 105.60. If this resistance holds then some correction will be expected first but we expect any downward moves to be limited to 104.13, which should now turn into support. With 104.13 support in place, a break over 105.60 should target 107.20/107.40 next and then 110.00 psychological level. As we had mentioned during December 2013, we expect USD/JPY to target 110.00 level in coming months.

1997, the year of previous consumption tax hike, was a different period. The uncertainties about the economy were too so high. Even the tax increase had made people helpful that it would help the economy and hence JPY strengthened initially before the realities struck and the yen went down rolling. The current situation is different. People are afraid of any change which increase the cost of living and they would try to cut down the cost. The rate hike and the possibilities of another hike should keep at least the retail sales in check and that would go against the yen but will help the Japanese exports. Considering we will not expect any strong upward trend for USD/JPY beyond 110.00.