The yen paired with the dollar continues to lose ground against the background of a temporary strengthening of the US currency. In the near future, the USD/JPY pair may occupy a price niche of 107.70-108.65, and not only due to a cautious rise in the price of the greenback.
However, the dollar still has the dominant role in the northern correction of the pair. The increase in the yield of 2-year and 10-year US Treasuries to the next highs caused excitement in the market, especially during the Asian session against the backdrop of an empty economic calendar, celebrating the Day of Presidents in the US and New Year in China.
In conditions of "thin" market, the dollar felt support and went up to the basket of major currencies. In turn, the profitability of treasuries has grown thanks to the optimistic tweet of the US president. Donald Trump again reminded the Americans that "the country's economy looks even better than expected," also noting the return of large companies in spite of the long-term trend of leaving. He also remembered a record low unemployment and a reduction in the tax burden. In general, Trump's rhetoric differed little from his usual public slogans, but it was enough for the dollar to recover a little.
Nevertheless, a major breakthrough did not happen, the main indices of Wall Street are on positive territory despite the growth of bonds. American stocks, figuratively speaking, acquired a certain "immunity" to such jumps of the Treasury, and did not succumb to panic. Moreover, this week important reports will be published, which may affect the mood of the stock and currency market. First, we are talking about the protocol of the January meeting of the Fed, and secondly, the report of the Federal Reserve on Monetary Policy.
Moreover, if the first document is unlikely to cause strong volatility as the Fed meeting in January was still spearheaded by Yellen and before the release of inflation data. Then, the report of the regulator in the Senate on Friday is likely to affect the dynamics of the markets. The new chairman, Jerome Powell, will assess the state of the country's economy in the context of the prospects for monetary policy. If he allows a faster increase in rates this year (ie four times), the stock market crash can happen again. Although, it is worth acknowledging that the probability of such a scenario is quite small.
In other words, the fundamental background does not contribute to the fall of the dollar, but it does not provide strong support for breaking through the key resistance levels. In turn, the Japanese currency also does not have its own arguments for growth. Moreover, almost all the fundamental factors favor the weakening of the yen.
Japan's GDP for the fourth quarter of 2017 grew worse than expectations by only 0.1 percent, although it showed positive dynamics (eighth consecutive time). Nonetheless, the growth was more impressive in the second and third quarters with 0.6 percent. Yet, the Japanese data on the trade balance really disappointed traders. For the first time in the last eight months, there was a deficit, as the volume of imports exceeded the volume of exports by almost nine billion dollars. Among the "culprits" of this trend is the more expensive yen (the optimal rate for exporters is 109-110) and the long New Year holidays in January.
In addition to macroeconomic indicators, the yen is exerted by pressure and personnel policy of the Bank of Japan. The Prime Minister of the country expectedly decided on Haruhiko Kuroda, offering his candidacy for the second five-year term as head of the Central Bank. This was talked about for a long time, therefore, in this context, the new deputies of Kuroda, namely, Masayoshi Amamiya, who previously served as executive director of the Bank of Japan, and Masazumi Wakatabe, a professor of the University of Tokyo, became more unexpected. Their candidacies speak about one thing: the Japanese regulator will not turn from a way of a soft monetary policy for a longer time. The fall of the USD/JPY pair under the 110 figure is only an additional argument in this matter.
Voting for the candidacies proposed by the government will be held on Friday. However, the position of the deputies is predictable, since Shinzo Abe controls the majority of the parliamentary. Thus, they have the opportunity to determine the personnel policy.
Thus, the dollar/yen pair is in limbo: the US currency has not strengthed for full growth so far, and the yen is under the pressure of internal fundamental processes, and again - without the support of external factors. All of these suggest the currency pair will have a flat movement and slowly drift towards the 108th figure is expected.
The technical picture also confirms this scenario. On the 4-hour chart, the pair is trading in an uptrend, which is confirmed by the "Golden Cross" signal of the indicator Ichimoku Kinko Hyo, whereas the lines, Kijun-sen and Tenkan-sen, crossed each other and are under the price chart. The price chart, itself, is located under the cloud Kumo. The Bollinger Bands indicator also confirms the upward movement, since the price is testing its top line. The target level of the northern movement is the lower line of the Kumo cloud (around 108.05), and then the upper limit of this cloud and the price of 108.65.
However, the level of support is quite strong at the level of 106.10, which is the bottom line of the indicator Bollinger Bands on the daily chart. Last week, the bears of the pair broke through this level, but could not gain a foothold under it, resulting in a return to the 107th figure.
Thus, the pair has the potential to develop a large-scale northern movement, but for this, it needs to consolidate all the lines of the indicator Ichimoku Kinko Hyo above the level of 108.65.
