Daily Price Outlook
The USD/JPY pair bounced back from its recent low near 141.00 as the Japanese Yen trimmed some of its gains against the US Dollar. However, this recovery was mainly influenced by a positive market sentiment driven by the Federal Reserve's dovish stance and expectations of additional stimulus from China. Furthermore, there is a growing belief that the Bank of Japan (BoJ) might end its negative interest rate policy sooner than expected, contributing to the Yen's support and may limit gains in the USD/JPY pair.
Positive Market Mood and the USD/JPY Pair's Resurgence
As we mentioned above that the major factor influencing the USD/JPY pair is the positive market mood, thanks to the Federal Reserve's more relaxed approach. It should be noted that Fed recently decided to stop raising interest rates by the end of December and hinted at possible rate cuts in 2024. This move has caused a drop in US Treasury bond yields.
Consequently, the interest rate difference between the US and Japan has decreased, making it tougher for the Japanese Yen to gain strength. This shift in dynamics is helping the USD/JPY pair's comeback.
Moreover, optimism about extra support from China is boosting the positive market sentiment, making the Japanese Yen less attractive as a safe-haven and contributing the gains in the USD/JPY pair.
Factors Affecting the Japanese Yen and USD/JPY Pair
Another factor influencing the strength of the Japanese Yen is speculation regarding the actions of the Bank of Japan (BoJ). There is considerable discussion about the potential for the BoJ to discontinue negative interest rates sooner than anticipated, possibly even before the outcomes of crucial employment negotiations at major corporations are known. This potential shift in policy is contributing to the appreciation of the Japanese Yen.
Economically, Japan's Machinery Orders data, which is a key indicator of capital spending, surpassed expectations by increasing by 0.7% in October. On the political front, Prime Minister Fumio Kishida's cabinet reshuffle amid a financial investigation highlights the challenges in Japan's political landscape.
Therefore, the speculation about the Bank of Japan's policy shift and positive economic data boost the Japanese Yen, likely causing a decline in the USD/JPY currency pair. Political challenges add to the mix, influencing exchange rates.
Looking ahead, traders are watching for monetary policy updates from major central banks in Europe, which could offer short-term opportunities. Furthermore, the upcoming US monthly Retail Sales data, expected to decline for the second successive month by 0.1% in November, will likely influence the USD/JPY pair's trajectory.
USD/JPY - Technical Analysis
The USD/JPY pair experienced a downward movement of 0.74%, settling at around 141.767. This decline marks a notable shift from recent sessions, with the pair now grappling with the pivotal 138.90 level, which stands as a significant pivot point in the current price dynamics. The chart suggests immediate resistance forming at 141.93, with subsequent barriers at 144.79 and 147.82. On the downside, the pair finds immediate support at 138.81, with further cushions at 135.86 and 133.19, which could be tested should the bearish trend continue.
Technical indicators display a bearish overtone, with the Relative Strength Index (RSI) deeply entrenched in oversold territory at 22, signaling potential exhaustion in selling pressure and the possibility of a reversal if market conditions permit. The Moving Average Convergence Divergence (MACD) stands at -0.373 with a signal line of -0.719, suggesting that downward momentum is waning, offering a glimmer of optimism for bulls in the market.
The pair's trading below the 50-day Exponential Moving Average (EMA) of 143.89 reinforces the short-term bearish trend. However, chart patterns and RSI levels warrant attention for signs of a potential correction or continuation of the trend.
While the USD/JPY pair shows a bearish trend in the short term, the oversold RSI indicates that a reversal could be imminent. Should the pair manage to recapture the 141 level, it could set the stage for a retest of the immediate resistance at 141.93. Investors will closely monitor the pair for signs of stabilization or further decline, as the currency navigates through key technical junctures in the days ahead.
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