Potential bullish breakout on CHF/JPY

The yen began to correct against its sustained weakness in September, when the MOF (Ministry of Finance) intervened in the currency markets to strengthen the yen. That helped CHF/JPY spent the next three or so months pull back from its highs and retrace against its bullish trend. However, the end of the correction may have been seen around 137, as momentum turned higher at a Fibonacci cluster which includes a long-term 38.2% retracement and 161.8% projection level.

Since then, prices have moved higher, built a level of support just above 140 and closed above the 200-day EMA. We also note that Friday’s low respected the 200-day EMA as support. So we’re now on guard for a potential bullish breakout above 143.60, which would also clear the 100-day EMA. A strong inflation report and further hawkish commentary from the SNB could help with such a scenario (as would confirmation of a dovish BOJ governor to replace Kuroda). A break below 140 invalidates the bullish bias.

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Swiss inflation came in much stronger than expected, paving the way for another SNB hike in March. Whilst there is another CPI print ahead of the SNB’s March meeting, January data exceeded expectations strong enough for serious consideration of a hike and bring doubts as to whether it has peaked for the year.

However, it has helped CHF/JPY breakout nicely. If the BOJ surprise/disappoint markets (as they trend to do often) and the new governor is just a dovish-Kuroda in disguise and YCC is not to get scrapped, I suspect CHF/JPY this will be trending much higher.