PRICE, CHARTS AND ANALYSIS: JAPANESE YEN
- USD/JPY Technicals point to exhaustion as RSI enters overbought territory.
- USD/JPY sideways as the dollar and yen battle for dominance.
- EUR/JPY is bouncing off the trend line and the 50-day line. Are further gains above 150.00 to be expected?
JAPANESE YEN Behind the scenes
The Japanese yen had to curb its recent rally at the end of last week, which continued into the new week. This morning, the yen faced renewed selling pressure as market sentiment appears to have improved. The currency strength chart below shows that the US dollar and the yen remain the weakest currencies at the start of the US session.
Currency Strength Chart: Strongest – EURweakest – U.S. dollar
The safe-haven attraction of the Japanese yen has supported the currency recently after EURJPY hit a 15-year high. Hawkish rhetoric from the ECB at last week’s meeting threatens to push EURJPY above the 150.00 mark in the medium term. With no monetary policy action expected from the Bank of Japan (BoJ) in the near term, hopes of averting further losses depend on general sentiment and the potential for a global recession in 2023. Persistent recession fears would likely weigh on market sentiment and maintain interest in safe-haven yen buyers.
For the USD/JPY, the fundamental picture looks a little more uncertain as the Fed intends to pause rate hikes. This has stoked recession fears and led market participants to raise their expectations for rate cuts in the second half of 2023. Friday’s labor market data, however, will give the Fed a brief moment of joy as the unemployment rate remains unchanged at a record low despite signs of a slowdown in the US economy. This should give the Fed optimism and underpin Fed Chair Powell’s comments that he sees US growth in 2023 as moderate rather than a recession. The fundamental outlook is currently gloomier than in the eurozone and could be the reason for the USDJPY’s indecision.
RISK EVENTS IN THE UPCOMING WEEK
There are a number of risk events in the upcoming week, particularly in the US and Japan, which could continue to influence general sentiment as well as the yen pairs. The US consumer price index remains the most important event of the week in the US, while the coincident index is also likely to be of interest outside Japan and provide insight into current economic performance.
Numerous speeches by Fed policymakers are scheduled this week, starting tomorrow with Fed members Jefferson and Williams. This could provide further insight into US monetary policy and policymakers’ expectations for the remainder of 2023.
Key risk events to keep an eye on:
PRICE SUPPORT AND POTENTIAL PRICING
EUR/JPY daily chart
EURJPY has suffered a sharp setback since hitting a 15-year high around the 151.60 mark. The sell-off was exacerbated by the safe-haven demand we saw last week as the pair retreated around 440 points towards the ascending trendline.
EURJPY touched the trend line for the third time and closed with a bullish inside candle on Friday, indicating further upside. Immediate resistance is at 150.00, with an upside break likely to bring recent highs into play. Given the extended rally to the upside, there is a possibility that EURJPY consolidates ahead of its next move. EURJPY remains bullish above 146.60, with a daily candle closing below this level invalidating the bullish bias.
USD/JPY daily chart
From a technical perspective, the daily chart of USD/JPY looks eerily similar to EUR/JPY. This is a problem for all yen pairs, as last week’s yen rally was driven by safe haven demand rather than technical factors.
Having broken through the ascending channel, we have since broken back down and touched the bottom of the ascending channel and the 50-day MA. Similar to EURJPY, the overall structure of USDJPY remains bullish at this stage, with a rise to resistance at 135.70 and above possible. Any upward pressure will face strong resistance here, with the 138.00 level proving too big a hurdle for USDJPY so far.
Alternatively, a downward push from here may reach the 50-day MA and the 100-day MA, which are at 133.86 and 132.86 respectively. A break and daily candle close below the 133.60 level would negate the bullish bias.
USD/JPY daily chart
The AUD/JPY chart shows that it has recovered after last week’s setback. The Australian dollar has benefited from the resumption of interest rate hikes by the Reserve Bank of Australia (RBA), which was also accompanied by aggressive rhetoric.
Since its low on 24 March, the AUDJPY has made higher highs and higher lows. The 92.00 level remains a difficult hurdle and has served as resistance since 22 February. In terms of structure, we should be on track for a new high, however, the RSI on the daily chart is in overbought territory and should be watched.
Similar to EURJPY, medium-term fundamentals continue to support an uptrend in AUDJPY, so pullbacks could provide an excellent opportunity to buy. AUDJPY remains bullish above the 89.76 level, with a daily candle closing below it is invalidating the bullish structure.