USD/JPY Rebounds And Moves Back Above the 140.00 Mark Amid Downbeat Japan GDP Data. PPI Inflation Data Looms
- USD/JPY Cross attracts fresh buying during the Mid-Asian sessions and reverses part of its earlier losses
- Fed policymaker Waller sent markets a timely reminder that the Fed will remain steadfast in its objective of achieving its 2% inflation target.
- U.S. President Joe Biden and Chinese President Xi Jinping's constructive meeting on Monday was seen as another factor that underpinned the greenback
- Downbeat Japan GDP Growth Annualized Prel(Q3) data undermines the Yen
- The U.S. Bureau of Labor Statistics is set to release the US PPI Inflation data Later Today
USD/JPY pair witnessed renewed buying from the vicinity of the 139.862 level during the mid-Asian session. They reversed part of their earlier losses to drag spot prices above the 140.00 psychological mark. An uptick in the U.S. dollar amid renewed U.S. dollar buying pressured the Yen prices on Tuesday and exerted upward pressure on the pair. Rebounding treasury bond yields amid expectations that the FED would raise its benchmark rate by a whopping 50 basis points in its next monetary policy meeting in December despite the latest CPI inflation data missing experts estimates was also seen as a key factor that offered some support to the greenback. In fact, CME'sCME's Fed watch tool has priced in an 80.6% probability of the FED raising its interest rates by 25-50bps in its December Monetary Policy Meeting.
Commenting on the CPI data report, Fed policymaker Waller sent markets a timely reminder that the Fed will remain steadfast in its objective of achieving its 2% inflation target. He stressed markets may have overreacted to last week's US CPI print as it remained a single data point. Additionally, at a conference in Sydney on Monday, Waller said that while the central bank would consider slowing interest rate hikes, there's still "a way to go" before hikes can be paused.
Waller'sWaller's Comments differentiated from those of Federal Reserve Vice Chair Lael Brainard, whose comments on Monday indicated that the central bank could soon slow the pace of its interest rate increases and provide some comfort to the market.
That said, further giving an extra boost to the dollar was the candid and constructive meeting between U.S. President Joe Biden and the Chinese leader Xi Jinping in Bali, Indonesia, on Monday on the sidelines of the G20 summit. Both stressed the need for the two sides across the pacific to respect each other, coexist in peace, pursue win-win cooperation, and work together to ensure that China-US relations move forward on the right course without losing direction or speed, still having a collision. Furthermore, The two leaders had a candid and in-depth exchange of views on issues of strategic importance in #ChinaUS relations and major global and regional issues.
Moving on to the Japanese docket, Limiting the Yen was the downbeat Japan GDP Growth Annualized Prel(Q3) data, which showed that the Japanese economy had unexpectedly contracted by 1.2% on an annualized basis in Q3 of 2022, missing market forecasts of a 1.1% growth and shifting from an upwardly revised 4.6% expansion in Q2, according to a preliminary reading showed by the Japan Cabinet Office. This was the first contraction in a year, reflecting weak private consumption amid rising cost pressures, a marked slowdown in business investment, and the fastest growth in imports in seven quarters due to a historic slide in the Yen that triggered an intervention in currency markets. That said, The Bank of Japan (BoJ) Governor Kuroda reiterated the need for monetary support as the economy continues its recovery. The Governor stated that the BoJ is monitoring both upside and downside risks which will form the basis of monetary policy moving forward. A policy shift from the BoJ remains elusive at this stage, with the central bank looking for solid wage growth before a policy change is considered.
It is worth remembering Kuroda had earlier reiterated that the Japanese central bank must continue to underpin a fragile economic recovery with loose monetary policy. Kuroda added that economic uncertainty is exceptionally high, and deeper negative rates are an option if needed. The BOJ had remained committed to guiding the 10-year bond yield at 0%. That said, the combination of factors was seen as a key factor that continued to widen the divergence in monetary policy stance between the More Hawkish FED and the dovish BOJ. As we advance, investors now look forward to the Japanese. The economic docket featuring the release of the Industrial Production (MOM) data for November is expected to land at -1.6% and remain constant with October's figure. That said, the main focus shifts toward the release of the Producer Price Index (PPI) data report, which is expected to show an increase in input costs for the production of goods and land at 0.5%, up from 0.4% in September. The Core PPI, which excludes food and energy, is also expected to show an increase in input costs for the production of goods and land at 0.4%, up from 0.3% in September.
Technical Outlook: USD/JPY Four-Hour Price Chart
From a technical standstill, the price rebounded from the vicinity of 139.862 level and is trading near a key resistance level shown by a downward sloping trendline plotted from the 10th November swing higher-highs. If buyers manage to pierce this ceiling, the attention will shift toward the 141.631 resistance level, which, if broken decisively, would negate any near-term bearish outlook and pave the way for aggressive technical buying.
The Moving Average Convergence Divergence (MACD) technical oscillator is in the negative territory and treading far away from the signal line though more price action this week as a result of important economic news data may uplift it to above the signal line. The Relative Strength Index(RSI) level at 35.54 quickly recoiled from the oversold region (below 30.00), thus inviting technical buyers to place bullish bets around the USD/JPY pair.
On the flip side, if technical sellers jump in and trigger a bearish turnaround, initial resistance will be at the 138.476 support level, which, if the sellers manage to breach this floor, downside pressure could accelerate, paving the way for a drop toward retesting the support level shown by a downward sloping trendline plotted from the 10th November swing lower-lows. Further weakness below the aforementioned support level would negate any near-term bullish outlook and pave the way for aggressive technical selling.
