Following the results of the Fed's September meeting, the US currency retreated in almost all dollar pairs, although the rhetoric of the Fed Chairman was quite hawkish. In general, the results of the September meeting were in favor of the US dollar: the regulator announced the curtailment of QE in November (and not in December) and tightened its position on the prospects for an interest rate increase, allowing a triple round of increases in 2023 for the first time. At the same time, the number of supporters of the initial rate hike has also increased next year. In other words, the Federal Reserve showed its strong qualities despite the risks, not retreating from its intentions amid weak Nonfarm and contradictory data on the growth of the consumer price index.
The market reacted to the results of the last meeting in its own way. The US dollar won back the supposed hawkish decisions even before the September meeting – since September 6, the US dollar index has shown a consistent upward trend, the peak of which fell on September 22, that is, on the day of the Fed's results. After the announcement of the decision, a backlash followed, according to the principle of "buy on rumors, sell on facts". The dollar weakened its positions in almost all dollar pairs, allowing its opponents to organize a correction.
However, the keyword here is "almost." For example, the US dollar paired with the Japanese yen did not even think to retreat. The USD/JPY pair is rising for the third day in a row, breaking the resistance level of 110.00 (upper border of the Kumo cloud on D1) and currently testing the next level of 110.50 (upper line of the Bollinger Bands indicator on the same timeframe). The pair has updated a one-and-a-half month high: the last time it was seen in this price area was in early August.
Such price dynamics is primarily due to the weakness of the Japanese currency. The yen weakened significantly against the dollar, and in the main cross-pairs, in particular, against the pound, euro, and Australian dollar. The currency is plunging due to three main factors: the "dovish" results of the Bank of Japan's last meeting, the disappointing inflation growth in Japan, and the preliminary resolution of the situation with the Chinese developer Evergrande. But first thing's first.
The results of the Bank of Japan, which were announced on Wednesday, disappointed market participants, after which the yen fell under a wave of sales. In general, the Central Bank did not do anything unusual: it confirmed the ceiling of the ETF repurchase program at the level of 12 trillion yen (which corresponds to $ 109 billion), commercial securities, and corporate bonds – at the level of 20 trillion yen. The Central Bank also recalled that the program of repurchasing government bonds remains unlimited. At the same time, the regulator voiced the already familiar dovish rhetoric, eliminating the possibility that it will change its current accommodative mood and (especially) raise the interest rate in the near future. Nevertheless, the key rhetoric of the September meeting of the Japanese regulator put significant pressure on the yen. At his press conference, the Bank of Japan's Chairman, Haruhiko Kuroda, said that the impact of coronavirus risks on the economy is still significant. In particular, the delta strain has significantly reduced consumption in the country. Kuroda also added that the Japanese regulator can clearly further soften the policy if the macroeconomic indicators continue to show negative dynamics.
As if confirming the fears of the head of the Central Bank of Japan, today's inflation release came out in the "red zone", noticeably not meeting the forecast values. The overall consumer price index has been in the negative area since October 2020. For the last three months, it has gradually increased, while remaining below zero. According to experts' forecasts, the indicator should have reached zero in August, continuing a weak, but still recovering process. However, the overall CPI collapsed again to the level of -0.4%. The consumer price index, excluding prices for fresh food, came out at zero (contrary to forecasts of growth to 0.1%), and the consumer price index, excluding prices for food and energy, declined to -0.5%.
In other words, key inflation indicators were disappointing again, putting additional pressure on the yen, which has not yet recovered from the dovish results of the Bank of Japan meeting.
It is worth noting that the Japanese currency showed strong growth at the beginning of this week. The yen enjoyed the status of a protective asset amid large-scale problems with the developer Evergrande, which the press has already dubbed "Chinese Lehman Brothers". According to several analysts, the possible collapse of the largest developer in China could be a significant blow to the Chinese economy, which could be a new global financial crisis. Such fears provoked an increase in anti-risk sentiment in the currency market, allowing the yen to strengthen throughout the market. However, this fundamental factor did not last long. It recently became known that Evergrande avoided a default on bonds in yuan. It is not yet known whether the owners of dollar securities will receive payments, but the company's shares have already soared by 32%, and the Hong Kong Hang Seng index rose by 2.5%. This fact reduced the degree of anti-risk sentiment, putting significant pressure on the yen.
The technical side of the issue also indicates the priority of longs for the USD/JPY pair. At the moment, the price is located on the upper line of the Bollinger Bands indicator on the D1 timeframe, testing the resistance level of 110.50. From the current positions, we can consider longs to the next price range, which corresponds to the level of 111.00 (the upper line of the Bollinger Bands indicator, but only on the weekly chart).
