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USDJPY Market Update

1/11/2023 1:47 PM

The quotes of the USD/JPY pair failed to overcome resistance at 134.47 and are now trading around 132.36 ahead of the publication of US inflation statistics.

Analysts expect that the December consumer price index will adjust from 7.1% to 6.5% in annual terms, and the base indicator – from 6.0% to 5.7%, which, in turn, may become a catalyst for slowing down the pace of further tightening of monetary stimulus by the US Fed and, as a result, significantly reduce the attractiveness of the national currency. It is assumed that the updated data will help the officials of the department to determine the pace of interest rate increases in early February, but now it can be assumed that the adjustment of the value will be no more than 25 basis points. In particular, this was stated by a member of the Board of Governors, Michelle Bowman, and the head of the Federal Reserve Bank (FRB) of San Francisco, Mary Daly.

In turn, the core consumer price index in the Tokyo region in December adjusted from 3.8% to 4.0%, and the index of household spending in annual terms in November lost 1.2% after an increase of 1.2% a month earlier with a forecast of 0.5% growth. The strengthening of negative dynamics may lead to a change in the "dovish" rate of the Bank of Japan. It is likely that with the re-election of the head of the regulator in April this year, the approach to monetary policy will change towards tightening, and for now, the continuing uncertainty will put pressure on the position of the Japanese yen.

The long-term trend is downward. Last week, buyers tried to break the resistance level of 134.47, but it was held. This led to a new wave of asset sales and a decrease in the price to the level of 131.40. If new drivers appear that contribute to the strengthening of the Japanese currency, we can expect a continuation of the decline with targets at 130.90 and 127.90.

The mid-term trend is downward. Last week, market participants tested the trend boundary of 135.24–134.69, which was held. Now the price is trading below the range, which allows us to consider selling the instrument with a target in the area of target zone 5 (129.23–128.87). If during the auction the price manages to consolidate above the level of 135.24, then the trend will change to an upward one. In this case, there will be a probability of growth to the target zone 2 (140.90–140.30).

Resistance levels: 134.47, 138.05, 139.50. | Support levels: 130.90, 127.90, 124.10.

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