Market Analytics and Technical Considerations

Key Points

The worst month for losses for the US Dollar Index since 2010 pushes the USD/JPY to a 3 bottom.

Fed Chair Powell gives a signal that the pace of increases would be slowed.

The Bank of Japan Talk About the Possibility of a Policy Shift.

FUNDAMENTAL BACKDROP FOR USD/JPY

The USD/JPY pair lost 420 or so points during the course of the US and Asian sessions, highlighting its vulnerability to US statistics and the dollar index. Following last nights episode address by Federal Reserve Chair Jerome Powell, the decline gained momentum, and it persisted during the Asian session as Bank of Japan policymaker Asahi Noguchi’s remarks taken on a hawk slant. After the European open this today, the pair has regained some support and is currently trading near the 136.40 mark, up roughly 70 pips from its low points.

It appears that the Bank of Japan will maintain its low rate of interest strategy until the conclusion of Governor Kuroda’s term in April 2023. Nevertheless, Noguchi’s remarks from the previous night were the first indications that the BoJ is monitoring data in an effort to leave the low-rate environment. Noguchi said that in order to raise wages, price movements must grow, with a salary increase of about 3% required if inflation target is to be realized. Noguchi suggests that if fundamental inflation accelerates faster than anticipated, the BoJ may withdraw stimulus in advance. Markets reacted warmly to these and other remarks, which caused USD/JPY to dip at a 3 bottom at 135.70.

Following Fed Chair Powell’s address at the Brookings Institution, which encompassed inflation, jobs, and the economic prospects, the US dollar index came under fresh price pressure. The Fed chair warned that the struggle against inflation is far from finished but all but confirmed a 50bp increase for the Fed’s meeting in December. After the talk, the likelihood of a rate increase of 50 basis points in December rose from 66% on Monday to 81% at this morning. The dollar index is again in trouble as it also suffered its greatest monthly loss in 12 years to end November.

The US Core Personal Consumption Expenditure (PCE) statistics, the Fed’s preferred inflation indicator, will be released later today, along with the NFP report on Friday. Today’s PCE report is expected to be higher than last month’s reading of 5.1% YoY, which could momentarily boost the dollar’s resilience.

Technically speaking, the USD/JPY has rebounded slightly outside of a support zone of 135.50. The price may return to its recent lows today if the dollar continues to decline, and it may even breach at below level in search of support under the 132.800 handle. Any movement is likely to be led by the dollar index, which at this point appears to be just as susceptible to additional downward stress as the USD/JPY. The RSI is in oversold area on the 4H and daily timescales, which is the only encouraging sign for an upward bounce.

Simple Moving Averages- Daily

Exponential Moving Averages – Daily