USD/JPY Retreats From Key Resistance Level On Low USD Demand; KURODA's Speech Awaited
- USD/JPY cross attracts fresh selling on Thursday to extend a modest rebound from the 144.847 level
- U.S. Dollar weakness across the board exerts downward pressure on the pair.
- The big divergence in the monetary policy stance adopted by the Bank of Japan and the FED continues to undermine the Yen
- Bank of Japan Governor set to speak today and drop subtle hints regarding future monetary policy and interest rate shifts
USD/JPY Pair reversed an intraday rise to 144.847 or over a one-week high and inched back closer to the previous day's close during the early Asian session. Further downtick seems possible heading into the European session amid the offered tone surrounding the U.S. Dollar.
The USD Index, which measures the greenback's performance against a basket of currencies, hits a one-and-half-week low amid the ongoing downfall in the U.S. Treasury bond yields. The Bank of England's reaffirmation to buy up to £5 billion of long-dated gilts dragged the U.S. Treasury bond yields away from a multi-year top touched last week. This, along with the risk-on impulse, forces the safe-haven USD to prolong its recent pullback from a two-decade high. Apart from this, A big divergence in the monetary policy stance adopted by the Bank of Japan and other major central banks, along with the risk-on impulse, undermines the safe-haven Japanese yen. This, in turn, acts as a tailwind for the USD/JPY pair. That said, a combination of factors is holding back bulls from placing aggressive bets and capping the upside, at least for the time being. Japan's Finance Minister Shunichi Suzuki said on Monday that the country stands ready to take decisive steps in the foreign exchange market if excessive yen moves persist. Suzuki's comments came after last week's bank of japan intervention. This, along with the prevalent selling bias surrounding the U.S. dollar and the narrowing of the US-Japan rate differential, further contributes to keeping a lid on any meaningful gains for the USD/JPY pair.
This year's rise in U.S. Treasury yields has put upward pressure on the 10-year JGB yields leading the BOJ, which remains an outlier among global central banks, to go for massive bond-buying to protect its de facto yield cap that fuelled the Yen's slide. Core consumer inflation in Tokyo was its highest since September 2014 and is a leading indicator of nationwide price rises. That means inflation will likely stay above the central bank's 2% target shortly, potentially making it harder for the BOJ to justify its ultra-easy policy. Meanwhile, the Federal Reserve, which delivered its third straight 75 basis points hike last month, was expected to continue with aggressive rate hikes, paving the way for the U.S. dollar to remain strong. Although the Yen, until recently a haven for investors during financial market turmoil, was predicted to gain around 7% to trade at 135 against the dollar over the coming year, it would be only a third of this year's losses of over 20%. Also, nearly a third, 18 of 60 strategists predicted the currency to trade above the 24-year low of 145.89/$ at some point in the next year.
The Bank of England's reaffirmation to buy up to £5 billion of long-dated gilts drags the U.S. Treasury bond yields away from a multi-year top touched last week. This, in turn, forces the USD to prolong its recent sharp pullback from a two-decade high. Adding further to the USD woes was the JOLTS Job opening data, which showed job openings fell by 1.1 Million in August, the most significant single-month decline since the start of the pandemic. That said, markets seem convinced that the Fed will continue to hike interest rates faster to tame inflation and have been pricing another supersized 75 bps increase in November. The USD bulls, however, await a fresh catalyst before placing bets. Hence, the focus will remain on releasing the closely-watched U.S. monthly employment details or the NFP report on Friday. The Data on Friday is expected to show the U.S. economy created about 250,000 jobs last month, below the 315,000 seen in August, with average hourly earnings forecast to remain steady at about 0.3% and the unemployment rate at 3.8%.
In the meantime, traders will take fresh cues from the U.S. Economic docket featuring Initial Jobless Claims data for release during the early north-American session. This, along with the Bank of Japan Governor's speech later today and the USD bond yields, will drive the USD demand. Apart from this, the broader risk sentiment should provide some impetus to the USD/JPY pair.
Technical Outlook: Four-Hours USD/JPY Price Chart
From a technical perspective, using a four-hour price chart, the price has extended the modest rebound from the critical supply zone ranging from 144.837 - 145.879 levels. Some follow-through selling would drag spot prices towards the 50 Exponential Moving Average (EMA) at the 144.333 level. Subsequent weakness below the aforementioned level would drag sot prices toward the next support level at 143.548. On further weakness below the mentioned support level, the downward trajectory could accelerate toward the key demand zone ranging from 141.584-141.864 levels.
All the technical oscillators portray a bullish outlook. The impending moving average convergence divergence (MACD) crossover would add to the bullish filter. On the other hand, The RSI(14) level at 49.82 oscillates in a narrow range and is on the verge of neutral territory.
On the Flipside, if dip-buyers and tactical traders jump back in and trigger a bullish reversal, initial resistance appears at the supply zone ranging from 144.837 - 145.879 levels. Buying interest could gain momentum if the price pierces this ceiling, creating conditions for aggressive technical buying.
