USD/JPY: Stability through H1, scope for modest Yen gains in H2 – Scotiabank

FXStreet Insights Team FXStreet

The Japanese Yen was one of the worst performing major currencies overall last year. Economists at Scotiabank forecast USD/JPY at 130 by the end of 2023.

Break below 129.50 could open up 121.45

“Our forecast for USD/JPY is consistent with the current Bloomberg consensus estimate for 2023 (130 in Q4) and the trend we expect to unfold reflects the broader outlook we have for the USD against the JPY’s major currency peers. In other words, stability close to current levels through H1, with scope for modest JPY gains developing through H2 as the Fed take its foot off the monetary brakes.”

“The long-term charts highlight 134.80/00 as resistance and 138.00/10 as major resistance above that point.”

“Support is 129.50, with a drop to 127.25 (50% Fibonacci retracement of the 2021/22 rally) or possibly 121.45 (61.8% retracement) below there.”

Author

FXStreet Insights Team

FXStreet

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

AUD/USD holds above 0.6950 as bullish USD caps gains

AUD/USD edges lower during the Asian session on Tuesday, stalling a two-day recovery move from a two-month low, touched last week. An extended rout in the fixed income market keeps US bond yields elevated near multi-year highs. This, along with geopolitical uncertainties, helps the US Dollar retain its bullish tone despite receding October Fed hike bets. However, expectations for another RBA rate hike this month could act as a tailwind for the Aussie.

USD/JPY rises back above 158.00 despite hawkish BoJ outlook

USD/JPY rises back above 158.00 in the early European morning on Tuesday. The pair strengthens as the Japanese Yen fails to find any inspiration from hawkish BoJ expectations and looming intervention risks. Meanwhile, geopolitical uncertainty and elevated US bond yields keep the US Dollar near its YTD high despite receding October Fed hike bets. This, in turn, helps the pair stay supported.

Gold recovers further from two-month low amid some USD profit-taking

Gold builds on its modest intraday bounce from the $4,100 neighborhood, or a two-month low, and climbs above $4,150 during the first half of the European session. The US Dollar pauses for a breather following the recent strong rally from the September monthly swing low and offers some support to the precious metal. Adding to this, receding bets on an October Fed rate hike benefit the non-yielding bullion.

Ripple and Stellar weaken as derivatives positioning fades

Ripple (XRP) and Stellar (XLM) face pressure trading below $1.499 and $0.220, respectively, on Tuesday after a modest correction at the start of the week. Traders should be cautious as weakening derivatives metrics and fading bullish momentum suggest further corrections for XRP and XLM. Derivatives data shows a weakening and cautious signal among traders.

Europe in focus as French and Spanish politics drive sentiment

There are no tier-1 releases today. Focus will remain on developments in the European markets and geopolitical developments in the Middle East. In France, the key issue in the coming days will be whether the Socialists and Marine Le Pen's National Rally signal they are willing to topple the government over the budget.

Eurozone inflation just hit 3.8%, its highest in three years. This chart shows why the ECB can’t simply hike its way out

The ECB would normally have a relatively straightforward answer to inflation running almost twice its target: raise interest rates. But these are not normal circumstances. This time, the bond market is already doing part of the tightening for it, leaving the ECB facing an increasingly difficult dilemma.