Yen Strengthens; Global Investors Eye Fed

Most Asian currencies experienced significant gains on Tuesday, driven by reduced concerns about higher U.S. interest rates, leading to substantial losses in the dollar. Investors shifted their focus to the upcoming release of the minutes from the Federal Reserve's October meeting. Additionally, optimism regarding China's measures to support its struggling property sector contributed to the positive sentiment.

The recent weakness of the U.S. dollar had a positive impact on the Japanese yen, fueled by expectations that the Bank of Japan might transition away from its ultra-loose monetary policy in the coming year. As fears of U.S. interest rate hikes eased, the yen strengthened by 0.6% on Tuesday, reaching its highest level in three months against the dollar. Traders responded by reducing bets on Japanese authorities intervening in currency markets.

Despite the yen's strength, concerns persisted about its outlook due to the dovish stance of the Bank of Japan. This sentiment was reinforced by the Japanese government's downgrade of its economic outlook for November, marking the first such reduction in 10 months. Weak demand weighed on both capital spending and consumer expenditure, leading to a cautious assessment of the recovery pace.

In an attempt to mitigate the impact of inflation on the economy, Prime Minister Fumio Kishida's government announced a package of measures exceeding 17 trillion yen ($113 billion). While the government expected a moderate economic recovery, it acknowledged risks from global monetary tightening and the Chinese economy.

Japanese wages, adjusted for inflation, declined for 18 consecutive months until September. However, major employers are expected to implement significant pay hikes in spring 2024, following this year's substantial increases. These pay raises aim to boost household spending and create conditions for the central bank to gradually scale back extensive monetary stimulus.

In October, Japan's core consumer inflation likely accelerated again, staying above the central bank's 2% target for the 19th consecutive month. The government will release the October CPI data on November 24 at 8:30 a.m. local time.

On the global stage, the U.S. dollar index experienced a recent downturn, prompting speculation about possible interest rate cuts by the Federal Reserve by spring 2024. The minutes from the Fed's October meeting, where rates were held steady, were awaited for further insights into monetary policy. Traders, reacting to weak inflation and labor market readings, had already priced in the possibility of no further rate hikes and a 30% chance of rate cuts by March 2024.

Despite market sentiment leaning towards a dovish stance from the Fed, the central bank has reiterated its commitment to keeping rates higher for a more extended period to address inflation. This week's economic calendar includes key indicators like MBA Mortgage Applications, Durable Goods Orders, Initial Jobless Claims, Final Michigan Consumer Sentiment, and S&P Global Flash Manufacturing/Services PMIs. In this timeframe, while the yen might exhibit a slight tendency to strengthen more than the US dollar, there is an anticipated persistent pressure in the medium term.

Data for Technical Analysis (5H) CFD USD/JPY

Resistance : 148.38, 148.47, 148.62

Support : 148.08, 147.99, 147.84

5H Outlook

Source: Investing.com

Buy/Long 1 If the support at the price range 147.98 – 148.08 is touched, but the support at 148.08 cannot be broken, the TP may be set around 148.44 and the SL around 147.93, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 148.38 – 148.48, TP may be set around 148.70 and SL around 148.03, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 148.38 – 148.48 is touched, but the resistance at 148.38 cannot be broken, the TP may be set around 148.05 and the SL around 148.53, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 147.98 – 148.08, TP may be set around 147.80 and SL around 148.43, or up to the risk appetite.       

Pivot Points Nov 22, 2023 03:04AM GMT

Sources: Investing 1, Investing 2