As the risk-off sentiment intensifies, USD/JPY attempts to move its auction profile above 137.00. Market players’ nervousness has increased due to conflicting opinions on the Federal Reserve’s prognosis for its policies. The Bank of Japan is making vigorous efforts to reach its target inflation rate of 2%. In the face of technical advantages, USD/JPY gains are anticipated to accelerate.
In the early European session, the USD/JPY circles the pivotal level of 137.00. Investors are becoming worried ahead of the release of the Federal Reserve’s interest rate decision. Thus USD/JPY is attempting to elevate its company profile over the previously stated crucial barrier (Fed). This is the final monetary policy of CY2022, and volatility is likely to linger a bit longer due to growing anticipation that the rate of interest rate hikes would slow down. Jerome Powell, the head of the Federal Reserve, is also anticipated to issue interest rate forecasts for the whole calendar year 2023.
Investors are waiting for additional information on the Federal Reserve’s policy outlook via comments from Federal Reserve officials, which is why the S&P 500 is performing subdued right now. At the time of writing, the 10-year US Treasury rates have given up gains and are now bidding below 3.57%.
The immediate resistance level of 105.20 is causing back-and-forth movements in the US Dollar Index (DXY). Despite a strong risk aversion trend in the global market, the US Dollar is having trouble breaking through the 105.20 barriers.
Investor’s mood is clouded by conflicting views on the Federal Reserve’s policy outlook.
It became evident that Federal Reserve members supported slowing the rate of interest rate increases after the Federal Open Market Committee (FOMC) minutes for the monetary policy meeting in October were made public. Jerome Powell, the head of the Federal Reserve, and his colleagues supported lowering financial risks and evaluating the results of the Federal Reserve’s efforts to achieve price stability.
The possibility of a larger rate rise extension to protect the economy from an inflation return has now been provoked by the announcement of positive payroll statistics for November and new demand in the US service sector. There is no ignoring the reality that increased job creation and strong demand in the service sector might re-ignite inflation.
According to Rabobank analysts, policymakers should revise their prediction for the terminal rate to be 5% and raise the policy rate by 50 basis points (bps) at the Federal Reserve of the United States.
US inflation will provide the groundwork for Federal Reserve policies.
Investors are anticipating the publication of Tuesday’s Consumer Price Index (CPI) data before the Federal Reserve makes its last monetary policy decision of the calendar year 2022 on Wednesday. The average forecast is for the headline inflation rate to stay the same at 7.7% while the core CPI, which includes the cost of fuel, increases slightly from the previous release’s 6.3% to 6.4%.
The United States Producer Price Index (PPI) data, which was issued on Friday, shows that the pace of inflation is still slowing down. In accordance with forecasts, the price index for factory-gate rates was reduced to 7.4%. A drop in end-product pricing suggests a drop in demand, which led manufacturers to be conservative in setting end-product prices.
Investors should prepare for an unexpected increase in inflation; however, since the US economy created 263K jobs in November, more than the 200K expected. Premium wages that come together with a shortage of workers might lead to solid household demand for durable goods.
Despite growing wages, the Bank of Japan will maintain its easing policy.
The possibility of a drop in inflation has arised due to a reduction in Japan’s Gross Domestic Product (GDP) figures. The price rise index never increases as a result of weak demand. According to Bank of Japan (BOJ) Haruhiko Kuroda, the BOJ would retain its loose policy until inflation hits 2%, even if wages increase by 3%. The Japanese yen (JPY) would be under additional pressure as a result.
Hajime Takata, a member of the Bank of Japan (BOJ) board, said that the Japanese economy has yet to reach a point where the central bank can abandon yield curve management in an interview with the Nikkei newspaper that was published on Saturday. He continued by saying that, according to Reuters, there were some encouraging signals in business capital spending and salaries.
Technical forecast for USD/JPY
USD/JPY has picked its speed and is now close to the descending trendline drawn from the high point on November 22 at around 142.24. After a stronger surge, USD/JPY is in a make-or-break situation. The 20- and 50-period Exponential Moving Averages (EMAs) at 136.5 form a bull cross, which suggests more upward movement. The Relative Strength Index (RSI) (14) has transitioned into the bullish zone of 60.00-80.00. Sustainability above the average will keep the USD/JPY’s reins firmly in place.