Wall Street is gradually recovering from a significant shake-up last week. The yield of 10-year U.S. government bonds has moved away from its highs and at the moment shows a downward trend. In turn, the Dow Jones index and the S&P 500 are in the "green zone", despite the apocalyptic predictions of the next collapse.
The main "beneficiary" in this situation was the Japanese currency. The dollar fell in price throughout the market, however, it was the pair with the yen that got the most rapid development. Now the USDJPY pair is at the level of 107.60 - the last time the price was at the same lows seen in September last year. It should also be noted that, from a technical point of view, the pair is on the bottom line of the Bollinger Bands indicator at almost all senior timeframes (except for the monthly chart). If the pair declines and steadies in the 106th figure, then technically it will open the way up to the 102nd figure (the bottom line of the Bollinger Bands indicator, which coincides with the lower boundary of the Kumo cloud on the monthly chart), with the corresponding fundamental background.
However, while talking about such long-term lows to talk is inexpedient. Undoubtedly, the dynamics of the major Wall Street indexes calmed the market: Dow Jones added 410 points (+ 1.7%) yesterday, the S&P 500 increased by 36 points (+ 1.4%), and the Nasdaq Composite -by 107 points (+1.56%). Also worth noting is the decline in the "index of fear" (CBOE Volatility) to a ten-day low.
All this suggests that panic in the stock market has stopped determining the movement of trading. However, it is still too early to put an end to this issue. Tomorrow the situation on the stock and currency markets can change dramatically if the US inflation exceeds the expectations of experts. The preliminary forecast has a contradictory structure: if analysts expect a slight increase in the CPI on a monthly basis, then in annual terms the slowdown is likely.
The increase in average wages and consumption costs suggests that the consumer price index may outperform expectations, and then the situation will go into a second round. The yield of treasuries will increase, the attractiveness of shares will decrease again, and the dollar, in turn, will quickly recover the lost positions. After all, weak inflation, generally, is the only reason why some members of the Fed are hesitant about speeding up rates of rate hikes. And if the borrowing rates increase at a faster pace, and the preliminary "limit" of 2.75% will be increased, the stock market will lose its former attractiveness for investors. In other words, the fate of the US currency now depends on the dynamics of the yield of 10-year treasury bonds- and tomorrow's release of the CPI will be a kind of "trigger" that will determine the vector of movement of all dollar pairs.
That is why today it is not recommended to open short positions on the dollar/yen pair. The pair has already reached a local low, so traders need an additional news pulse. Against the backdrop of a half-empty economic calendar, this impulse will be tomorrow's inflation release.
In addition, another important indicator will be published tomorrow. It is about the dynamics of Japan's GDP for the fourth quarter of last year. In the third quarter of 2017, the Japanese economy grew by 0.6%, continuing to demonstrate positive dynamics. However, today most analysts are less optimistic. In their view, the GDP will come out at 0.2%. In general, if the indicator is at the forecast level, the yen is unlikely to react with a decline. But in case of a decline in the negative area, the pair will not be able to ignore this fact.
Japan's economy expanded for seven consecutive quarters, so an unexpected slowdown could have a negative impact on the national currency. However, it must be noted that despite the importance of this indicator, the main tone of the USDJPY trade will still be set by the US dollar. The weak growth of Japanese GDP can serve only as an additional reason for the growth of the pair, if greenback will be strengthened throughout the market.
Thus, the further dynamics of the dollar/yen pair is completely dependent on tomorrow's release of the CPI. If the US inflation shows growth, the price will be corrected at least to the level of 108.90 - this is the Tenkan-sen line on the daily chart. The second goal of the northern movement is the price of 109.45 - this is the middle line of Bollinger Bands on the same timeframe.
However, we cannot rule out an alternative scenario. If the US consumer price index comes out in the "red zone", the yen will continue to strengthen. Now the price is on the bottom line of the Bollinger Bands indicator on all timeframes, except for MN, so the main support level is at 102.15 (the bottom line of the Bollinger Bands indicator, which coincides with the lower boundary of the Kumo cloud on MN). But this target of the downward movement is too ambitious, so the immediate goal is to designate the level 107.10 - the lowest price of September last year.
