USD/JPY retreats from multi-decade-highs and meanders around 129.80s

• The USD/JPY is set to record its biggest monthly gain since November 2016 so far, up 6.70%.
• The market mood is mixed, as European stock indices rose while US equities fell.
• USD/JPY Price Forecast: Though it remains upward biased, it is in a correction.

The USD/JPY pullbacks from two-decade highs during April’s last trading day and edges lower some 0.52%, amid broad US dollar weakness, courtesy of traders booking profits ahead of next week’s Federal Reserve monetary policy meeting. At around 129.80, the USD/JPY is set to finish the month with hefty gains close to 7%, the greenback’s most significant gains since November 2016.

Mixed sentiment and US dollar weakness, a headwind for the USD/JPY

Sentiment shifted to a mixed one, as European equities rise while US ones fall. The Fed’s favorite gauge for inflation, the Core Personal Consumption Expenditure (PCE) for March, rose by 5.2% y/y, lower than the 5.3% foreseen, a sign that inflation might be peaking. However, analysts of ING in a note wrote that “even if supply chains improve and we see geopolitical tensions ease a little, we doubt this inflation measure will be below 4% before early next year.”

Also, the Bank of Japan’s (BoJ) commitment to its ultra-loose monetary policy weighed on the JPY throughout the week. The BoJ kept rates unchanged on Thursday and reiterated that it would buy an unlimited amount of 10-year JGBs at a fixed 0.25% rate. The BoJ’s expressed that they will ease policy without hesitations as needed with an eye on pandemic impact.

Meanwhile, China’s Covid-19 worries wane as its health agency emphasized its commitment to COVID zero, but instead would optimize its response. Also, further economic stimulus from Beijing on COVID affected industries and small firms improved the market mood.

Also read: USD/JPY Weekly Forecast: The fallacy of devaluation or the BoJ is out of ideas

Elsewhere, the recent Ukraine-Russia developments have taken a backseat so far. However, Ukraine’s President Zelenskyy said that Kyiv is ready for immediate negotiations for evacuation from the Azonstal plant.

In the meantime, the US Dollar Index, a measurement of the greenback’s value against a basket of its peers, retraces 0.44%, sitting at 103.215, a reflection of profit-taking and month-end flows. Contrarily to the previously mentioned, the 10-year benchmark note rate sits at 2.904%, up almost eight basis points from yesterday’s close.

Therefore, the USD/JPY is ongoing through a correction on Friday. However, financial analysts speculate that the FOMC’s May meeting could be a “buy the rumor, sell the fact” event due to the steeper rally posted by the greenback. USD/JPY traders might need to be aware of it because a deeper correction might be on the cards.

USD/JPY Price Forecast: Technical outlook

The USD/JPY remains upward biased, despite Friday’s fall. For the USD/JPY pair to shift to a neutral bias, a daily close below 129.40 is needed, which could threaten to drag prices towards April’s 27 swing low at 126.94. Nevertheless, that scenario is unlikely to happen unless a fundamental shift from Japanese authorities could boost the JPY.

Upwards, the USD/JPY first resistance would be 130.00. A break above would expose 131.00, followed by the multi-decade-high around 131.25. On the other hand, the USD/JPY’s first support would be 129.00. A breach of the latter would expose April’s 129.40 daily high, followed by April’s 28 daily low at 128.33.