USD/JPY Forecast: Panic receded, fears persist
|USD/JPY Current price: 105.91
- BOJ and the Fed injected liquidity through unscheduled bond buying.
- Wall Street had its worst day in decades, indexes bouncing ahead of the opening.
- USD/JPY in recovery mode could advance up to 106.70.
The USD/JPY pair surged to 106.22, its highest for this week, as central banks take desperate measures in an attempt to stabilize markets and cool down panic. Sentiment improved Thursday temporarily after the NY Fed offered $500 Bln in a three-month repo operation to counter the coronavirus-related crisis. Also, the Fed announced it would pump up to $1.5 trillion into the financial system, also meant to palliate the crisis. Equities bounced, although the DJIA ended the day roughly 10% down, losing a whopping 2353 points, its worst day since 1987.
Nevertheless, government debt yields bounced, with the yield on the benchmark 10-year Treasury note recovering from 0.73% to currently hover around 0.89%. This Friday, the Bank of Japan proceeded with an unscheduled buying of ¥200 billion Japanese Government Bonds during Asian trading hours, after injecting earlier ¥500 billion into the system via a repo operation. By the end of the session, the central bank bought another ¥101.4B ETF.
In the data front, Japan released the January Tertiary Industry Index, which rose by 0.8% in the month, missing the market’s expectation of 1.2%, although better than the previous -0.3%. The US will publish the preliminary estimate of the March Michigan Consumer Sentiment Index, foreseen at 95 from 101 previously.
Equities are trading mixed, although the DJIA futures are some 500 points above Thursday’s close at the time being, indicating that sentient could keep improving ahead of the weekly close. Still, the coronavirus crisis and its effects on economic growth are far from over, and demand for safety will likely persist in the upcoming days.
USD/JPY short-term technical outlook
The USD/JPY pair is stable just below the 106.00 figure, finding support around the 38.2% retracement of its latest daily slump at around 105.35. The level stands now as a line in the sand in the short-term, as bears will hold back as long as the price remains above it. Technical readings in the 4-hour chart suggest that the recovery may continue, as the pair is developing above a bullish 20 SMA, while technical indicators maintain their bullish slopes within positive levels. Beyond the daily high, the pair has room to extend its advance up to 106.70, the next Fibonacci resistance.
Support levels: 105.775 105.35 105.00
Resistance levels: 106.25 106.70 107.10
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