USD/JPY ANALYSIS & TALKING POINTS
- BoJ rate decision– YCC & Japanese economic forecasts in focus.
- Slew of US economic data to contribute to price volatility.
- USD/JPY seeks ascending channel break.
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JAPANESE YEN FUNDAMENTAL BACKDROP
The Japanese Yen has given back much of its gains seen in early March after optimism around the new Bank of Japan (BoJ) Governor Kazuo Ueda and a potential shift away from the long standing ultra-loose monetary policy. Since then, there has been little in the way of guidance from the BoJ to shift their policies while money market pricing (refer to table below) suggest policy hikes are unlikely in 2023.
BANK OF JAPAN (BOJ) INTEREST RATE PROBABILITIES
This week, the BoJ will kick-off central bank rate decision on Friday with revised economic forecasts of high importance alongside any mentioned of Yield Curve Control (YCC). The graph below shows the BoJ’s expanding balance sheet stemming from Japanese Government Bond (JGB) purchases to defend their yield caps. The fact that easing measures have been a staple of global markets for many years, any slight adjustment could induce a heightened reaction.
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BANK OF JAPAN BALANCE SHEET
US centric data will guide the pair ahead of the rate announcement but many of these data points are projected to suggest a slowing US economy and thus could favor JY strength. Key releases include US GDP, durable goods orders and the Fed’s preferred measure of inflation, core PCE in a week where the Fed’s blackout period is underway (no Fed speak!).
Source: DailyFX economic calendar
Chart prepared by Warren Venketas, IG
The daily USD/JPY chart shows price action trading within an ascending channel (black) chart pattern that may point to a continuation of the prior downtrend if channel support can be breached. Such an action would bring into consideration the 130.00 psychological support handle and beyond while an invalidation that could arise from strong US economic data and a dovish BoJ announcement may result in a move above channel resistance towards the 200-day moving average (blue).
Key resistance levels:
- 200-day MA (blue)
- Channel resistance
Key support levels:
- 50-day MA (yellow)/133.63
- Channel support
IG CLIENT SENTIMENT POINTS TO IMPENDING DOWNSIDE
IGCS shows retail traders are currently net SHORT on USD/JPY, with 59% of traders currently holding short positions (as of this writing). At DailyFX we take a contrarian view on sentiment; however, due to recent changes in long and short positioning, we arrive at a short-term bearish disposition.
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