The bears' control over the direction of the USD/JPY currency pair continues. There were no attempts to rebound upwards, as it did not exceed the resistance level of 129.16, before settling around the level of 128.25 at the time of writing the analysis.
All currencies against the Japanese yen are awaiting today, when the Bank of Japan will announce an update to its monetary policy. On the other hand, the US retail sales report and the Bank of Japan's decision may affect the next direction for this pair. Keep in mind that the BoJ had already intervened in the government bond markets earlier, which could mean that they are preparing for more monetary policy action in the future. Any drastic policy changes or moves to widen the inflation target could lead to yen crosses rallying, including jawboning notes to curb yen volatility.
Meanwhile, there is another dip in consumer spending in the US, which may dash hopes of an interest rate hike by the Federal Reserve later in the year. However, stronger than expected data could mean more bullishness for the greenback.
Morale is affected
A much-watched survey of fund managers showed a thaw in the gloom that characterized the last quarter of 2022 as recession fears faded and funds were allocated to emerging markets and the European Union at the expense of cash and the United States. The Bank of America fund manager's survey reveals that investors remain bearish but much lower than in the fourth quarter, amid China's reopening optimism and belief that the Fed is close to ending the cycle of US rate hikes.
The result is lower levels of liquidity in their accounts as they are earmarked for emerging market and EU assets, with the UK also benefiting. The United States is the loser, as the survey revealed the largest decline in exposure to the United States since October 2005.
Recession fears fade as China reopens its economy: China's growth outlook is at a 17-year high with 91% expecting a "full reopening" of the world's second-largest economy in 2023. The survey also shows a six-month low in recession fears (51%) and a one-year high in global growth optimism (net -50%). The survey data reveals that the Fed's "interest rate shock" is ending as perceived liquidity conditions become more moderate.
Investors' perception of negative "liquidity conditions" was a headwind for risky assets for most of 2022 and was even more negative in October 2022 when US Treasury volatility peaked. Interestingly, despite talk of a dollar decline during 2023, the “dollar buy” deal is still said to be the busiest position (32% of responses), followed by long ESG assets (17%) and long-term stocks in China ( 12%).
Technical analysis of the dollar pair against the Japanese yen:
- The price of the USD/JPY currency pair retreated through the support at the key psychological level of 130.00 and fell to 127.20 before rising.
- The price could retest the previous floor, which may now hold as resistance.
- Application of the Fibonacci retracement tool to the recent sell-off shows that the area of interest is around the 38.2%-50% levels.
- These are also extended by dynamic inflection points in the moving averages.
The 100 SMA is below the 200 SMA to confirm that the general trend is still bearish. Selling is more likely to resume than to reverse. The higher decline could reach 61.8% Fibonacci retracement near the 132.00 mark. If any of the Fibonacci levels hold as resistance, USD/JPY could fall to lows of 127.00 or below. Stochastic has started to turn lower from the overbought area to reflect the return of selling pressure. The oscillator has plenty of room to move lower before reflecting exhaustion among the bears. On the other hand, the RSI has some room to head before reaching the overbought territory to indicate exhaustion among the buyers.
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