Forex world

December 28, 2022

USD/JPY corrects marginally to near 134.00

- USD/JPY has slipped marginally to near 134.00, however, the upside is still favored amid uncertainty in the market.

- Federal Reserve might look for returning to policy easing led by the recent decline in retail demand and economic activities.

- The expression of loose monetary policy continuation in the Bank of Japan’s summary of opinions has weakened the Japanese Yen.

- USD/JPY may display more upside after a Rising Channel breakout and bullish signs from the momentum oscillator.

USD/JPY pair has sensed long liquidations after a vertical rally around 134.40 in the early European session. The asset has corrected marginally to near 134.10, however, the corrective move seems healthy for the major as the market sentiment is still risk-averse. The Japanese yen pair is expected to resume its upside journey for recapturing the critical resistance of 135.00 ahead.

Meanwhile, S&P500 futures are displaying a subdued performance as the market participants are getting anxious amid the festive mood. The 500 United States stock basket witnessed selling pressure on Tuesday led by weakness in technology stocks and a decline in International Trade Deficit. The return on 10-year US Treasury bonds has trimmed below 3.85% but is still showing promising signs of recovery ahead.

The US Dollar Index (DXY) is struggling to surpass the crucial resistance of 104.00, however, the upside is still favored amid uncertainty in the global market towards the rapid reopening approach of the Chinese administration.

Federal Reserve might return to policy easing sooner

Recent decline in the United States Durable Goods Orders and Personal Consumption Expenditure (PCE) Price Index have delivered an expression of a slowdown in inflation expectations further. A sheer decline in the demand for durable goods, and consumption expenditure by households are critical for a decline in inflationary pressures. And now, a decline in Tuesday’s International Deficit as firms are restricting themselves from expanding operations due to higher interest obligations is going to compel the Federal Reserve to return to policy easing context sooner.

On Tuesday, the US Census Bureau reported that Exports of goods for November were $168.9 billion, $5.3 billion less than October exports while Imports of goods for November were $252.2 billion, $20.8 billion less than October imports. This indicates a decline in overall economic activities, which might result in lower employment opportunities in the CY2023.

United States economy is far from recession

Market participants have been debating over the United States economy getting into recession and a higher Unemployment Rate to achieve price stability. As the Federal Reserve is hiking interest rates dramatically, economists have been compelled to trim Gross Domestic Product (GDP) projections and firms get restricted from executing of expansion plans.

Thomas M. Mertens, a Researcher from the Federal Reserve (Fed) Bank of San Francisco’s Economic Research Department came out with a recession predictor based on macroeconomic time series, particularly the jobless unemployment rate. He cited that no predictors indicate an upcoming recession over the next two quarters currently. And, the jobless rate does not currently signal an impending recession.

Bank of Japan’s Summary of Opinions favors easy monetary policy ahead

In the Summary of Opinions by the Bank of Japan, the central bank cleared that widening of the yield band was meant to address distortion in 10-year Japanese Government Bonds (JGBs) pricing but this is not a step toward an exit from ultra-easy policy, as reported by Reuters. The expression from the Bank of Japan’s summary of opinions indicates that the central bank must maintain the easy policy as the Japanese economy is in a critical phase in hitting the price goal. No doubt, the economy is showing signs of wage rises, and a positive economic cycle but it is appropriate to maintain an easy policy for time being.

USD/JPY technical outlook

USD/JPY is on the verge of kissing the horizontal resistance plotted from the December 14 low around 134.52. The US Dollar is extremely strong as the asset has delivered a breakout of the Rising Channel chart pattern formed on an hourly scale. The pair has scrolled above the 200-period Exponential Moving Average (EMA) at 133.88, which indicates that the long-term trend has turned bullish.

Meanwhile, the Relative Strength Index (RSI) (14) has shifted into the bullish range of 60.00-80.00, which signals that the upside momentum has been triggered.

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