Cases in China have been on the rise for several weeks, while the world's second largest economy also recently reported its first related deaths in a long time. Despite an easing in quarantine times, authorities remain committed to the strict zero-Covid policy.
The pandemic situation in China has been a source of market risk for a while now, while protests over the weekend, sparked a flight to safety. The Japanese Yen benefits more than the USDOLLAR from those risk-off flows, since markets contemplate a potentially slower pace of rate hikes by the US Fed.
The current week brings key events that could determine the next leg of the pair's move. These include a speech by Fed Chair Powell ahead of the upcoming communication blackout period, as well as the latest PCE Inflation figures from the US.
USD/JPY heads towards its worst month in twenty-four, in an aggressive correction from October's multi-decades high. Bears are in control and set new three-month lows today, which puts the 200Days EMA in their eyesight (at around 135.00). However, a convincing drop below this mark that would bring 130.38 in the spotlight, may prove elusive in the near-term.
Despite the potential for smaller hikes by the US Fed, it still looks at further tightening, whereas the policy differential with the Bank of Japan remains stark, since the latter has shown no inclination to change its uber-dovish stance.
Given this, a rebound towards 140.00 would not be surprising, but the upside looks unhospitable. Under these conditions, a bigger advance that would challenge key 142.50-143.10, has a high degree of difficulty.
Senior Market Specialist
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.
With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.