The Japanese Yen (JPY) slid sharply today after the Bank of Japan (BoJ) announced that it will be adding to its historic stimulus measures already in place. After 18-months of wait-and-see, the BoJ is upping its pace of stimulus, working towards the 2.0% annual inflation target. One of the measures was increasing asset purchases to ¥80-trillion from the ¥60-70-trillion range.
The market while expecting a continuation of existing stimulus did not expect any increase of it. Caught surprised, it went into a JPY-selling frenzy during the 10/31 session. Let’s take a look at the reactions in the USD/JPY and EUR/JPY, which essentially summarizes the reactions across the board.
USD/JPY has been recovering since the October correction down to 105.19. The FOMC’s announcement to end QE gave it another boost mid-week, and it was poised to test the high on the year around 110. The BoJ announcement sent the pair flying (due to JPY-weakness) into fresh highs on the year.
At this point, the 110 area will become a possible support on a pullback, and the upside risk extends toward a common support/resistance area around 114.87-115.00.
When we look at EUR/JPY‘s daily chart, we can see that today’s JPY-sell off can be shifting the EUR/JPY’s mode. Since the end of 2013, the pair has been in a bearish correction against an uptrend that started in 2012. For the mode in 2014, we can say it has been bearish, though it has been choppy, and in a consolidation structure, so that bullish trend from 2012 is still in play for the medium to long-term.
The BoJ-reaction sent EUR/JPY to 140.60 where it is now testing a couple of falling trendlines, the main one coming down from that Dec. 2013 high of 145.69. At this point, price looks poised to break out of 2014’s falling channel, or pennant pattern, which would signal bullish continuation to 143.78, then 145.69, with risk of extending the 2-year uptrend even higher.
If there is a pullback, look for support starting at the 139.00 handle. A break below 137.59 would move price below the key SMAs, and signal a failed bullish continuation attempt, which translates to more consolidation and bearish outlook.
Look across the board for JPY-crosses and you will see similarly sharp rallies in GBP/JPY, AUD/JPY, NZD/JPY, CAD/JPY, etc. While USD/JPY is already in the bullish continuation mode with fresh highs on the year, these other pairs all have been consolidating for the most part in 2014, and today’s price action took all of them into the direction of bullish continuation. The JPY once again becomes the ultimate weakling.
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