USD/JPY Outlook Undermined Ahead of BoJ Amid Bearish RSI Divergence

Talking Points:

- USD/JPY Bearish RSI Divergence in Focus Ahead of BoJ Policy Meeting.

- AUD/USD Rebound Vulnerable to RBA Verbal Intervention.

- USDOLLAR at Risk of Larger Correction as Bullish RSI Momentum Comes Under Pressure.

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USD/JPY

• USD/JPY may have carved a key top ahead of the Bank of Japan (BoJ) interest rate decision as the bearish divergence in the Relative Strength Index (RSI) becomes increasingly clear.
• Still seeing expectations the BoJ will further expand its asset-purchase program at the October 7 meeting as the Federal Reserve moves away from its easing cycle.
• Even though DailyFX Speculative Sentiment Index (SSI) has narrowed for USD/JPY, the indicator continues to show net-short retail position in USD/JPY, with the ratio currently standing at -1.22.

AUD/USD

• AUD/USD looks poised for a larger rebound as the RSI comes off of overbought territory & carves a near-term series of higher-highs & lows.
• Even though the Reserve Bank of Australia is widely expected to maintain a period of ‘interest rate stability,’ may see Governor Glenn Stevens retain the verbal intervention on the Australian dollar in order to further assist with the rebalancing of the real economy.
• As the AUD/USD retains the longer-dating bearish RSI momentum, the next key downside target comes in around 0.8525 (50.0% expansion) to 0.8540 (50.0% retracement).

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USDOLLAR(Ticker: USDollar):

Chart - Created Using FXCM Marketscope 2.0

• Dow Jones-FXCM U.S. Dollar Index looks vulnerable as the RSI remains capped by the 83.00 region & threatens the bullish momentum carried over from July.
• Beyond the Federal Open Market Committee (FOMC) Minutes, the fresh batch of central bank rhetoric from Fed doves may heavily impact the dollar as the Non-Farm Payrolls (NFP) report continues to highlight subdued wage growth.
• Will wait for a bearish RSI break to favor a larger USDOLLAR pullback; will watch former resistance zone for new support, which comes in around 10, 752 (38.2% expansion) to 10,759 (61.8% retracement).

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--- Written by David Song, Currency Analyst

To contact David, e-mail [email protected]. Follow me on Twitter at @DavidJSong.

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