The Dollar-Yen pair dropped to a session low of 114.24 in the North American session on Wednesday after Trump remained silent on fiscal policies. The drop to 114.24 was followed by a recovery to 115.41, which proved to be short lived as the dollar selling again gathered pace in Asia. Consequently, the pair fell back to 114.60 levels.

Japan posts current account surplus for 29 straight months

Japan posted a current account surplus of JPY 1.415 trillion in November - a jump of 28% year-on-year. The trade balance showed surplus of JPY 313.4 billion - exceeding forecasts for JPY 254.4 billion and down from JPY 587.6 billion in the previous month. Exports dropped 0.8%, while the imports tumbled 10.7%.

As per textbook rules, current account surplus is positive for the home currency. Moreover, a 29-month positive trend in the current account surplus could have strengthened Yen as well if it were not for the heightened odds of a faster Fed rate hikes in 2017 and Trumpflation.

If the Dollar-Yen stabilizes in the range of 115.00-120.00 over the next few months, the export growth could turn positive. The resulting current account surplus could then start pushing the Yen higher.

Technicals - Break below 114.55 (23.6% fib) is likely

Daily chart

• The bearish price RSI divergence on the daily chart, followed by a repeated failure to hold above 116.04 (double top neckline) coupled with the bearish break in the daily RSI below 50.00 suggests the spot could breach 114.55 (23.6% fib of 101.19-118.66) levels and slide to 50-DMA level of 113.00
• On the higher side, only a daily close back above 116.04 would signal bullish invalidation.

AUD/USD forecast: Caution advised

Daily chart

Monthly chart

• The spot is stuck at 0.7469, which is the confluence of the falling trend line and 50% fib retracement of Nov 8 high – Dec 23 low).
• Failure to take out the same as witnessed yesterday could yield a pull back to 0.7396 (38.2% fib).
• The daily RSI is yet to hit the overbought territory, hence the dip demand is likely as long as the spot trades above 0.7396. On the higher side, gains could be extended to 0.75-0.7528 (Dec 14 high).
• On the lower side, only a break below 0.7370 would abort the current rally and open doors for a slide to 0.73 handle.