Forex Analysis & Reviews: USD/JPY: calm before the storm
time 30.11.2022 09:09 AM
time Relevance up to, 03.12.2022 08:38 AM

This image is no longer relevant

The dollar-yen pair is passing the time for the second straight session in anticipation of a strong impulse. It can happen right now. The Fed chief's speech should persuade the pair to turn around.

The dollar index tested a weekly high on Wednesday during Asian trading before dropping 0.13% to 106.7.

The US dollar continues to sway back and forth as market uncertainty about the likelihood of US interest rate increases is out of this world.

Recall that the Fed launched the most ferocious anti-inflation campaign of any central bank this year. This helped the greenback to strengthen significantly against its main competitors. It rose to 114.78 in September, marking a 20-year high.

The latest report on US inflation turned out to be weaker than anticipated. As a result, increased expectations that the Fed may slightly slacken its monetary rate have caused the dollar to drop twice to 105 since the middle of this month.

This week, the market's mood has once again changed. Recent remarks by Fed officials have caused traders to question whether the US is winning the war against rising prices.

John Williams, the president of the Federal Reserve Bank of New York, stated on Monday that the central bank must tighten monetary policy more quickly. James Bullard, a colleague from St. Louis, emphasized that interest rates will increase even more the following year.

Due to these positive remarks, a rate increase in December is now much more likely by 75 basis points. Although only a few people believed it a few weeks ago, traders now estimate it to be 37%.

The dollar, which appeared to have reached the peak of its bullish potential, was revived by escalating hawkish market expectations. The dollar has been able to strengthen recently in nearly all key areas, but not simultaneously with the JPY.

This image is no longer relevant

The yen, which has suffered more than other currencies this year due to a sharp rate hike in America, is currently holding on to its last hope that the Fed will soon adopt less hawkish policies with all its might.

The "Japanese" gained more than 7% against the dollar this month thanks to speculation about a potential slowdown in American rate increases.

The yen was knocked back to earth this week by the most recent remarks made by Fed officials, which slowed the sharp recovery.

The USD/JPY pair is currently frozen in anticipation of a clearer signal that should shed light on the future dynamics of interest rates in America. The pair is trading in a very small price range of 138–139.

In the opinion of many analysts, Jerome Powell's speech today should be a significant catalyst for the dollar-yen asset. His first public appearance since the FOMC meeting in November will be this one.

Dollar bulls anticipate that J. Powell, the head of the US Central Bank, will ride this wave, given that his colleagues this week expressed hawkish views.

If the Fed chief emphasizes the need for additional aggressive tightening or makes another hint at a higher level of final rates, the dollar will soar if this happens.

In this case, the yen is unlikely to be able to maintain its current levels and will probably give up the positions it has worked so hard to gain.

There is, of course, another scenario that, on the other hand, might cause another weakening of the dollar. The dollar is unlikely to hold up if traders interpret J. Powell's recent statements as more dovish, especially compared to the yen.

Analysts believe that the USD/JPY asset will become more volatile in the near future. Whatever the Federal Reserve chairman says today will drastically impact the market.

The dollar-yen asset could still weaken further, according to UOB analysts' technical analysis of the USD/JPY pair, but they also point out that its downward momentum has slowed.

According to experts, we are currently observing a strong oversold major, which suggests that a decline to the next support at the level of 137.00 is unlikely. Only if the USD/JPY pair breaks through at roughly 139.60, regarded as a strong resistance level, will the dollar's bearish momentum finally end.

Аlena Ivannitskaya,
Analytical expert of InstaForex
© 2007-2023
US Dollar vs Japanese Yen
Select timeframe
Start trade
Start trade

InstaForex analytical reviews will make you fully aware of market trends! Being an InstaForex client, you are provided with a large number of free services for efficient trading.

  • Grand Choice
    Contest by
    InstaForex always strives to help you
    fulfill your biggest dreams.
  • Chancy Deposit
    Deposit your account with $3,000 and get $1000 more!
    In February we raffle $1000 within the Chancy Deposit campaign!
    Get a chance to win by depositing $3,000 to a trading account. Having fulfilled this condition, you become a campaign participant.
  • Trade Wise, Win Device
    Top up your account with at least $500, sign up for the contest, and get a chance to win mobile devices.
  • 100% Bonus
    Your unique opportunity to get a 100% bonus on your deposit
  • 55% Bonus
    Apply for a 55% bonus on your every deposit
  • 30% Bonus
    Receive a 30% bonus every time you top up your account

Recommended Stories

USD/JPY at crossroads

Today is a very important day for the US currency. The Federal Reserve is expected to hike interest rates once again and determine the trajectory of its further tightening. This

Аlena Ivannitskaya 09:03 2023-02-01 UTC+2

US stocks closed higher, Dow Jones up 1.09%

At the close on the New York Stock Exchange, the Dow Jones rose 1.09%, the S&P 500 index rose 1.46%, the NASDAQ Composite index rose 1.67%. The leading performer among

Thomas Frank 04:36 2023-02-01 UTC+2

The euro is at a loss: is it in danger of falling like the USD?

The euro is steady in an uptrend, but from time to time it stumbles and fails. At the moment, the euro's efforts are rewarded by its leading position against

Larisa Kolesnikova 08:18 2023-01-31 UTC+2

USD/JPY: US dollar latches on Fed rate increase expectations

The US dollar tries to take advantage of the upcoming interest rate hike in the US. On Monday, USD/JPY rose by 0.7% and hit the high of 130.5. The current

Аlena Ivannitskaya 08:07 2023-01-31 UTC+2

EUR/USD: the dollar is cautious as it seeks ways to rise, but the euro is stubborn

The U.S. currency occasionally tries to rise and secure the upward momentum, but usually those efforts are blocked by the euro's persistence. For several weeks, the euro, taking advantage

Larisa Kolesnikova 10:55 2023-01-30 UTC+2

US stock market closes higher, Dow Jones gains 0.08%

At the close of the New York Stock Exchange, the Dow Jones rose 0.08%, the S&P 500 rose 0.25%, and the NASDAQ Composite rose 0.95%. The leading performer among

Thomas Frank 04:05 2023-01-30 UTC+2

European markets closes the week with growth

Major Western European indexes were trading higher on Friday after falling the day before. European markets advanced after a spectacular rise in US and Asian stock markets. Mining stocks rallied

Irina Maksimova 00:45 2023-01-29 UTC+2

The dollar is swirling in a cycle of new numbers. The Fed has the last word.

Market sentiment is mixed, with traders trying to catch the most accurate signal coming from U.S. data. While people are almost certain that the Federal Reserve will be less aggressive

Anna Zotova 00:45 2023-01-29 UTC+2

Second straight day of gains for Asian markets as uptrend continues

Major Asian indexes continued to rise on Friday, though the upside movement was not as strong as it was yesterday. In Japan, the Nikkei 225 inched up by only 0.05%

15:53 2023-01-27 UTC+2

Oil prices edge up, and Russia transfers record volumes on high seas

Oil is steadily rising in trading on Thursday amid expectations of increased demand. The easing of some quarantine restrictions in China promises the market a recovery in consumption this year

Natalia Andreeva 22:52 2023-01-26 UTC+2
Can't speak right now?
Ask your question in the chat.