The Japanese Yen has experienced a slight uptick against the USD as escalating geopolitical tensions drive investors towards safe-haven assets. Despite a temporary dip, the Yen maintains a positive bias, supported by concerns in the Middle East and the Bank of Japan’s recent hawkish stance. In contrast, the USD remains steady below monthly highs, restricting the USD/JPY pair within a familiar range. The impending two-day FOMC meeting adds an element of uncertainty, with traders adopting a cautious approach. The Bank of Japan’s reluctance to phase out negative interest rates, coupled with softer Tokyo Core CPI, may limit the JPY’s upward momentum. Traders are advised to await substantial USD/JPY selling before confirming a potential trend reversal.
Daily Digest Market Movers: Japanese Yen Gains Amid Geopolitical Tensions and BoJ’s Hawkish Tone
The Tokyo CPI’s decline raises doubts about the Bank of Japan’s immediate plans to abandon negative interest rates, impacting the Japanese Yen.
While the USD maintains strength, supported by the recent high, traders adopt a wait-and-see approach ahead of the critical FOMC meeting.
Data from Friday indicates a modest rise in December inflation, reinforcing expectations of a mid-2024 rate cut by the Federal Reserve.
The Personal Consumption Expenditures (PCE) Price Index holds steady at 2.6%, while the Core PCE Price Index decelerates to 2.9%, lower than November.
Strong demand from US consumers is reflected in the 0.7% rise in Personal Spending and 0.3% growth in Personal Income for December.
Despite upbeat US Q4 GDP, disinflationary pressures and progress towards the Fed’s 2% target ease concerns, keeping USD bulls on the defensive.
Market pricing suggests a 50% chance of easing in the March FOMC meeting and a 90% probability of an interest rate cut in May.
Investors brace for the release of key US macro data, including Nonfarm Payrolls (NFP), as the new month begins.
Technical Analysis: USD/JPY Shows Consolidation Above 100-day SMA
Technically, the failure to breach the 100-day Simple Moving Average (SMA) last week supports the notion of further gains for USD/JPY.
Positive territory in daily chart oscillators and absence from the overbought zone validate the bullish outlook.
Bulls may await confirmation with follow-through buying beyond the multi-week top around 148.80 before targeting 149.30-149.35.
Downside protection is anticipated near the 100-day SMA at 147.55, limiting immediate downward movement.
A breach below this support may find buyers at 147.00, restricting the downside near 146.45 or last week’s swing low.
Further downward trajectory could extend to 145.30-145.25 before potentially reaching the psychological support at 145.00.
USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
USD | -0.04% | -0.07% | -0.05% | -0.24% | -0.06% | -0.24% | -0.12% | |
EUR | 0.04% | -0.02% | -0.01% | -0.19% | 0.00% | -0.20% | -0.08% | |
GBP | 0.05% | 0.02% | 0.00% | -0.18% | 0.02% | -0.19% | -0.06% | |
CAD | 0.05% | 0.00% | -0.02% | -0.18% | 0.01% | -0.19% | -0.06% | |
AUD | 0.24% | 0.19% | 0.17% | 0.18% | 0.19% | -0.01% | 0.12% | |
JPY | 0.05% | 0.01% | 0.12% | -0.01% | -0.20% | -0.22% | -0.07% | |
NZD | 0.24% | 0.21% | 0.18% | 0.18% | 0.00% | 0.19% | 0.12% | |
CHF | 0.11% | 0.07% | 0.05% | 0.07% | -0.12% | 0.06% | -0.12% |
ECONOMIC INDICATOR
United States Fed Interest Rate Decision
The Federal Reserve (Fed) deliberates on monetary policy and makes a decision on interest rates at eight pre-scheduled meetings per year. It has two mandates: to keep inflation at 2%, and to maintain full employment. Its main tool for achieving this is by setting interest rates – both at which it lends to banks and banks lend to each other. If it decides to hike rates, the US Dollar (USD) tends to strengthen as it attracts more foreign capital inflows. If it cuts rates, it tends to weaken the USD as capital drains out to countries offering higher returns. If rates are left unchanged, attention turns to the tone of the Federal Open Market Committee (FOMC) statement, and whether it is hawkish (expectant of higher future interest rates), or dovish (expectant of lower future rates).