Market Analytics and Technical Considerations
- In the midst of the pervasive selling bias encircling the US Dollar, USD/JPY stagnates close to the weekly low.
- The likelihood of somewhat lower rate increases by the Fed continues to be a major drag on the dollar.
- The JPY gains from the US-Japan rate disparity, which also serves as a drag for the pair.
On Thursday, amid a lower US Dollar, the USD/JPY pair experienced strong selling for the third straight day, falling to more than a one-week low. According to the minutes of the Federal Open Market Committee (FOMC) meeting in November, a substantial number of decision-makers believed that a rate hike might soon be warranted.
Officials admitted that there had been little discernible movement on inflation but were generally satisfied with their ability to stop front-loading rate hikes and move in smaller measures. However, the dovish evaluation of the minutes solidified predictions for a 50 bps lift-off at the following FOMC meeting in December. This caused the recent decrease in US Treasury bond yields to continue, which weighed on the dollar.
The benchmark 10-year US government bond’s yield actually decreased to its lowest level as early October. This led to a reduction in the rate disparity between the US and Japan, which supported the Japanese Yen and put more drop on the USD/JPY pair. However, the Bank of Japan’s more dovish attitude prevented the JPY from gaining any more ground.
It’s important to note that BoJ Governor Haruhiko Kuroda reaffirmed last week that the central bank will continue its monetary easing to boost the economy and hit the 2% inflation objective in a steady manner. In addition, the risk-on attitude acted as a drag on the safe-haven JPY and helped spot prices gain some support around the 138.00 round-figure level.
The abovementioned elements cause the USD/JPY pair to increase throughout Friday’s Asian session, although the increase lacks positive confidence due to the pervasive USD selling sentiment. In the wake of lowish trading volumes and the absence of pertinent market-moving economic data, traders also appear reluctant to put aggressive wagers. Spot prices, however, are still very close to the monthly low reached last week and continue to fall weekly despite the overall pessimistic outlook for the dollar.
Technical Prospects
Technically, the USD/JPY pair has thus far maintained some strength below the 61.8% Fibonacci retracement line of the surge from August to October. It is therefore wise to hold off on making further negative bets until there has been consistent weakness below the 138.00 level. Below this level, spot prices appear to have a higher likelihood of accelerating their decline into the 137.00 level. The next significant support is located close to the monthly low, around the 137.65 area. On the way to the 136.00 round number, the negative trend may continue to the 136.45 intermediate support.
On the other hand, the Asian day top, which was around the price of 139.00, appears to be acting as a strong immediate barrier right now. Any further attempts at recuperation might still be viewed as a buy signal and be capped close to the psychological level of 140.00. The USD/JPY pair may move up into the 141.00-141.10 junction, which is formed by the 100-day SMA and the 50% Fibo mark, if some follow-through purchasing occurs. To counter the near-term bearish view and promote prospects for a further recovery back towards the 142.00 round number, a strengthening back over the abovementioned barrier is required.
