The Bank of Japan (BOJ) recently introduced negative interest rates policies. The Federal Reserve (FOMC) was a little bit concerned of the future of the economy of the US, while the Reserve Bank of Australia (RBA) maintained their rates.
What is Negative Interest Rate?
For starters, in the USD/JPY pair, the USD is quoted first and JPY is quoted second; here, the USD is the leader. Therefore, if the JPY becomes weaker, the pair will move up.
But will Yen remain weak? Now that the BOJ said that they’d employ negative interest rates policies, some analysts speculated its effectiveness. Frankly, those that implement such policies like the Euro zone don’t really have impressive results. So, what else is on the table for BOJ? This could be their last chance in achieving their 2% inflation target.
If you take a look at the economic situation of Japan, the most recent data isn’t really positive. As a matter of fact, the current economic reports suggest a possible slowdown of GDP for Q4 2015. In addition, the BOJ seems to rely on the virtuous cycle from income to spending in household and corporate sectors to push for inflation. However, household income and expenses have been contracted annually.
The RBA Statement
The RBA decided to keep their interest rates unchanged at 2% to issue a more positive domestic view while shifting to their global outlook. However, Aussie investors have decided to drop him versus its major partners, Japan and USA.
For the AUD/USD pair, the resistance wall has built the 11-year-support-turned into-resistance at 0.7125. Let us analyze.
Fundamentals. The fundamentals of Australia are positive. While Japan is negative, the dust might have been settled for now. The outlook of the data from the US this week looks rather negative, however.
AUD/JPY. The pair projects strong bearish signals. In long term perspective, the pair has broken below the 6-year upward channel and below the Ichimoku cloud. On a daily basis, on the other hand, the pair is challenged by strong resistance at 86.16; forming bearish patterns.
Sentiment. Market participants nowadays are confused. Currently, the sentiments remain on the bearish side as the upsides for AUD have been considered.
With high volatility potential, it is preferable to stick to the ranges and set small entry/exit orders to create a few pips on the news. Wait until the end of the week to from long-term strategies.