- A combination of factors drags USD/JPY to its lowest level since August 18 on Friday.
- The Fed’s dovish pivot keeps the US bond yields depressed and weighs on the USD.
- Hawkish signals by BoJ member underpins the JPY and contributes to the downfall.
- Investors now look forward to the key US NFP report for some meaningful impetus.
The USD/JPY pair oscillates in a narrow band through the Asian session on Friday and consolidates its recent sharp decline to the lowest level since August 18. The US Dollar remains depressed near a multi-month low amid dovish signals from the US central bank and acts as a headwind for the major. It is worth recalling that Fed Chair Jerome Powell on Wednesday said that it was time to slow the pace of interest rate hikes. The message was clear that the US central bank will soften its policy stance, which, along with signs of easing inflationary pressures, continues to weigh on the greenback.
The US Bureau of Economic Analysis reported that the Personal Consumption Expenditures (PCE) Price Index decelerated to 6% YoY in October from 6.3% previous. Adding to this, the annual Core PCE Price Index, the Fed's preferred gauge of inflation, edged down to 5% from 5.2% as expected. The softer data dragged the yield on the benchmark 10-year US government to a nearly two-month low, narrowing the US-Japan rate differential. Apart from this, hawkish remarks by Bank of Japan (BoJ) board member Asahi Noguchi underpins the Japanese Yen and contributes to bearish sentiment surrounding the USD/JPY pair.
Noguchi said that the BoJ could withdraw stimulus pre-emptively if inflation overshoots expectations. This, in turn, supports prospects for an extension of the depreciating move for the USD/JPY pair. That said, oversold conditions hold back bearish traders from placing fresh bets ahead of the release of the closely-watched US monthly jobs data. The popularly known NFP will play a key role in influencing the near-term USD price dynamics ahead of the crucial FOMC meeting on December 13-14. This will be followed by the BoJ meeting on December 20 and help determine the next leg of a directional move for the major.
From a technical perspective, the overnight sharp fall confirms a fresh bearish breakdown through the 137.60-137.50 horizontal support. This adds credence to the negative outlook for the USD/JPY pair. That said, it will be prudent to wait for some follow-through selling below a technically significant 200-day SMA before positioning for additional losses. The said support is currently pegged near the 134.50 area, below which spot prices could weaken further below the 134.00 mark and test the next relevant support near the 134.10-134.00 area.
On the flip side, any meaningful recovery attempt is more likely to confront a stiff barrier and remain capped near the 136.00 round figure. A sustained move beyond, however, could trigger a short-covering rally and lift the USD/JPY pair back towards the 137.50-137.60 support breakpoint, with the 136.80-137.00 area acting as an intermediate resistance.
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