FX volatility has picked up ever so slightly after we noted the record lows in FX implied options volatility in our most recent posts, mostly as US-China trade deal headlines have buffeted the market action. THE USD has gone from strength to a few sessions of weakness, though not yet taking key broader measures of the USD over the edge, even if isolate pairs like NZDUSD and GBPUSD have broken major chart levels. Today we look at two USD pairs with conflicting directional potential and have a look at the risk appetite proxy AUDJPY. Also, over year-end we are curious how the action in EURNOK shapes up from here, both as a bellwether for global growth hopes, but also as we have seen episodes of extreme seasonal weakness in NOK into year end in recent years.
USDJPY – triple divergence, but where is follow through?
USDJPY has experienced a second sharp rejection of new highs, creating a “triple divergence” setup in a momentum indicator like the MACD (higher price highs with lower momentum readings). The confirmation for this setup starts to come in with a break below the 108.25 area marked with the red dashed line, which is coincidentally near the top of the daily Ichimoku cloud. Note that the recent highs were all grouped near the very thin weekly Ichimoku cloud (not shown here). We should see resolution one way or another in the comingg few sessions - though USDJPY has been a treacherous one as volatility has reached historic lows.