USD/JPY Steadies & Defends Key Support, after Last Week’s Slump

  • USDJPY
    (${instrument.percentChange}%)

USD/JPY Analysis

The Bank of Japan did not change the status quo last week, since it unsurprisingly maintained its stimulatory policies unchanged [1], while a day later CPI Inflation (excluding fresh food) rose 2.2% in June, staying above its 2% target for the third straight month.

The figure however is nowhere near that of other advanced economies, with the US headline CPI having hit 9.1% in June, the highest in four decades.

The monetary policy differential between the BoJ and the Fed is impressive, as the latter has already hike rates by 1.5% this year, but officials kept their cool after the latest CPI report are widely expected to not hike more than 75 basis points on Wednesday.

Markets had briefly priced in 1% move, but now appear in-line with the Fed's communicated path, as CME's Fed Watch Tool projects a 75 bps increase, with nearly 80% probability at the time of writing. [2]

These toned-down expectations, allowed the Japanese Yen to benefit, as the USD/JPY ended last week with losses. This has created prospects for a more meaningful correction towards 133.15. However, we are cautious around such moves and the daily Ichimoku Cloud (starting at mid-132s) is likely to contain further weakness.

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The pair steadies today and holds the EMA200 (black line), which maintains the medium-term upside bias. As such, the greenback can find renewed strength and make another effort for the 140.00 mark, although it will need fresh impetus for that, which will bring 142.49 in the spotlight.

The pair's path will be determined by Wednesday's Fed policy meeting outcome and the guidance around September.

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

1

Retrieved 25 Jul 2022 https://www.boj.or.jp/en/announcements/release_2022/k220721a.pdf

2

Retrieved 09 Aug 2022 https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html#

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