- After testing its lowest level in three months, the USD/JPY currency pair is trying to recover ahead of important events affecting the US dollar pairs this week.
- The price of the dollar/yen fell towards the 137.50 support level, its lowest since the end of August.
- At the beginning of this week’s trading and at the beginning of Trading today, Tuesday it jumped to the resistance level of 139.35, and settled around the level of 138.60 at the time of writing the analysis, waiting for anything new.
Overall, US Central Bank Governor Jerome Powell this week is expected to shore up expectations that the Federal Reserve will slow the pace of US interest rate increases next month while reminding Americans that his battle against inflation will continue into 2023. Powell is scheduled to deliver a speech nominally focused on the market. American Action at an event on Wednesday hosted by the Brookings Institution in Washington. It will be one of the last events from policymakers before the start of a quiet period ahead of their December 13-14 meeting.
The event provides Powell with a stage to echo fellow Fed officials in signaling that they will raise the benchmark interest rate by 50 basis points at their last meeting of the year, after four consecutive hikes of 75 basis points. But with inflation still well above the US central bank's 2% target, it is likely to chime any talk of a downward turn with a warning that US interest rates will rise further next year. Investors expect the Fed to slow next month as rates peak around 5% next year from the current rate of 3.75% to 4.00%, according to contract pricing in futures markets.
That forecast is in line with Powell's remarks after the Fed meeting earlier this month, when he indicated that officials may fizzle out the pace of interest rate increases as soon as next month, even as they eventually raise rates to a higher peak than they previously thought.
Minutes of the Nov. 1-2 meeting showed widespread support among officials to moderate their moves, with a "large majority" agreeing that he would come soon to slow the pace of price increases. But views on how much higher borrowing costs have been less clear, with "diversified" policymakers seeing an argument for the rise somewhat higher than expected. In September, officials saw rates reach 4.4% by the end of this year and 4.6% by the end of next year, according to the average forecast issued after that meeting. These forecasts will be updated at next month's meeting.
The Fed chief will speak on the same day the Labor Department releases an update to the Employment Opportunity and Employment Turnover Survey, or JOLTS, a report Powell often cites as evidence that demand for labor vastly exceeds supply. Employment openings unexpectedly increased in September, another strong reading that could indicate further wage pressures. His remarks will also come two days before the US jobs report for November, which policymakers will also review before their interest rate decision, along with upcoming inflation data.
But Powell is unlikely to target them in his remarks, and may instead repeat what he said earlier this month about how officials could soon use fewer rate hikes, but rates may need to be a little higher than previously expected to calm rates.
USD/JPY Forecast
According to the performance on the daily chart below, the losses of the USD/JPY currency pair pushed the technical indicators toward oversold levels. Therefore, I expect to think about the possibility of buying the dollar-yen from the following support levels of 137.90 and 136.80, respectively. Over the same period of time, price stability above the psychological resistance will be important for the bulls to regain control over the trend. I expect an upward movement for the dollar-yen pair in the coming days, and any decline in prices is an opportunity to buy.
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