USD/JPY Plunges, Heads Towards its First Losing Week Since March
USD/JPY Analysis
The latest batch of data from the US showed that inflation moderated in April, but remains exceptionally high. The Consumer Price Index (CPI) eased to +8.3% year-over-year, from 8.5% prior and the Producer Price Index (PPI) deescalated to 11.0%, from 11.5% prior (revised).
Surging Inflation has forced the US Federal Reserve to move aggressively on monetary tightening, having already delivered two consecutive rate hikes. Last week however, Chair Powell appeared a bit conservative on the size of upcoming rate adjustments, taking of the table, larger 75 basis points moves. [1]
After the last CPI report yesterday, Mr Bullard who is a voter and prominent hawk, backed this plan, saying that 0.5% moves "is a good benchmark for now" and that 75 basis points is "not my base case", in a Yahoo Finance Interview. [2]
In any case, the Bank of Japan (BoJ) is on a completely different phase, having reiterated its pledge to buy unlimited amounts of government bonds (JGBs), in its last policy decision in late-April.
This divergence has sent USD/JPY to a massive rally since March, that led to new twenty-year highs on Monday (131.26). According to today's Summary of Opinions from the BoJ's April 27-28 meeting, officials view as "necessary" the continuation of the current "powerful monetary easing".[3]
The Summary also revealed the members' belief that the Yen's depreciation "works positively in the current situation", which does not bode well with a recent survey from Reuters, which had shown that the majority of Japanese companies are worried over the Yen's weakness.[4]
USD/JPY plunges today, as the rally runs out of steam and the risk-off mood along with the sell-off in Cryptocurrencies, seem to help the Yen. The pair looks poised to pause its relentless nine-week advance, and is now exposed to the EMA200 and the 23.6% Fibonacci form this year's lows to the highs (127.12-126.90). A breach of this area can spark a deeper correction towards the 38.2% level (124.51), but we are cautious about the downside.
Despite the poor performance today, the Relative Strength Index (RSI) points to oversold levels and the 127.12-126.90 region has the ability to provide support, from a technical prospective. As long as these levels are defended, bulls can push back to 130.00 and eventually set new highs, but this will likely need fresh impetus.
Nikos Tzabouras
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.
References
| Retrieved 12 May 2022 https://www.youtube.com/watch | |
| Retrieved 12 May 2022 https://www.youtube.com/watch | |
| Retrieved 12 May 2022 https://www.boj.or.jp/en/mopo/mpmsche_minu/opinion_2022/opi220428.pdf | |
| Retrieved 26 Mar 2023 https://www.reuters.com/world/asia-pacific/exclusive-three-quarters-japan-firms-bemoan-current-yen-weakness-bad-business-2022-04-13/ |
Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this website are provided on an "as-is" basis, as general market commentary and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, FXCM takes all sufficient steps to eliminate or prevent any conflicts of interests arising out of the production and dissemination of this communication. The employees of FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the FXCM's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed here.