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Most read: USD/JPY Expects Deeper Recovery Amid Rising Dollar Index
USD/JPY FUNDAMENTAL BACKGROUND
The USD/JPY pair stopped the fall this morning, rebounding from support in the 138.50 area. The pair rose by more than 120 points, offsetting yesterday’s losses. Yesterday’s push down came in close proximity to its latest low near 137.60 as markets digested the FOMC minutes report with a bearish bias.
Inflation data for Tokyo was released the day before, beating forecasts as it last peaked in 1982. Consumer prices rose 3.6%, indicating stronger growth across the country as the Bank of Japan believes inflation has not yet peaked. The pace of growth was driven by rising prices for processed foods and a weak Japanese yen. The Bank of Japan’s low interest rate policy is set to continue until the end of Governor Kuroda’s term in April, and inflation is expected to ease in 2023 as government subsidies for energy costs come into effect soon.
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The US dollar index found support after Wednesday and Thursday’s sell-off, which pushed USD/JPY back to the psychological 140.00. The weakness in the dollar comes as the market price has a 75% chance of rising 50 basis points in December following the release of the Fed’s minutes. The peak Fed funds rate for May 2023 was adjusted downward after the meeting as some politicians saw rates peaking around the 4.75% mark, rather than the 5.25% that Fed speakers recently spoke of.
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Daily USD/JPY – November 25, 2022
Source: Trading View
Technically, the pair bounced off the support area around 138.50, which is likely to close the day in a bullish engulfing candle. This may lead to further gains for the pair ahead of the new week, when the psychological level of 140.00 and the 100-day moving average still remain a stumbling block for the pair.
Alternatively, a weaker dollar earlier in the week could see the pair drop to its recent lows with support at 137.50 and 135.50 respectively. The pair should remain in a relatively tight range for the remainder of today, given the tight liquidity due to the Thanksgiving break in the US.
clients net long.
clients clean short.
IG CUSTOMER MENTALITY DATA: BEAR
IGCS shows that retail traders are currently short USD/JPY, with 52% of traders currently holding short positions. At DailyFX, we usually take the opposite view of crowd sentiment, but due to recent changes in long and short positions, we prefer the short-term upside bias.
Written by: Zein Wavda, Market Writer for DailyFX.com
Contact Zayn and follow him on Twitter: @zvawda