- The continued discrepancy between the future of the US Federal Reserve’s hawkish policy and the Bank of Japan, which has an accommodative policy with negative interest rates, allowed the bulls to control the performance of the USD/JPY currency pair, with gains that reached the resistance level of 149.82 last week near the psychological resistance of 150.00, which is often raised about the possibility of a Japanese intervention in the markets at any time to stop further collapse of the currency price.
- I am still wary of whether the US dollar is stronger against the rest of the other major currencies, but in the case of the dollar/yen currency pair, it has a special nature as Japan is strongly affected by the exchange rate, especially against the US dollar.
- Therefore, caution must be exercised as there's the possibility of concluding selling from the highest levels instead of risking buying from above there, especially with the psychological resistance exceeding 150.00.
Inflation Data in Focus
On the economic side, US inflation measures in September showed that the pace of price increases remained low, albeit at a slow and irregular pace. According to an official announcement, prices in the United States rose by 0.4 percent in the period from August to September, representing a slowdown from the previous month. Last Thursday's report from the US Department of Labor also showed that annual consumer inflation in September was unchanged from a 3.7 percent rise in August.
Core inflation fell slightly: so-called core prices, which exclude volatile food and energy costs, rose 4.1 percent in September compared with 12 months earlier, down from an annual pace of 4.3 percent in August. This is the smallest increase in the core measure in two years. However, on a monthly basis, prices are still rising faster than the US Federal Reserve's target of 2 percent. Core prices rose 0.3 percent in September, the same as the previous month.
Economists and Fed officials have long warned that US inflation is likely to decline in a bumpy and uneven manner, although it is still expected to continue to slow through 2024. The latest US inflation data comes on the heels of several speeches in the same week by Fed officials. The Federal Reserve indicates that they are inclined to leave their benchmark. US interest rates remain unchanged at their next meeting from October 31 to November 1.
Longer-term interest rates have risen since Federal Reserve policymakers last raised the key interest rate in July. Higher interest rates on longer-term bonds have made mortgages, auto loans and business borrowing more expensive, a trend that could help calm inflation pressures without further rate hikes by the Fed. In general, several factors have combined to force longer-term interest rates higher. They include financial markets' belated acceptance of the possibility that the economy will remain on a steady footing and avoid a recession.
Technical analysis of the USD/JPY pair:
The USD/JPY currency pair continues to trade above the 100-hour moving average line despite the decline. The pullback pushed the currency pair into the normal trading zone of the 14-hour RSI.
In the near term, and according to the performance on the hourly chart, it appears that the USD/JPY currency pair is trading within a descending channel. This indicates a significant short-term downward bias in market sentiment. Therefore, the bears will target extended declines at around 149.36 or lower at 149.00. On the other hand, the bulls will target profits at around 149.67 or higher at 149.85.
In the long term, and according to the performance on the daily chart, it appears that the USD/JPY currency pair is trading within an upward channel. This indicates a significant long-term upward bias in market sentiment. Therefore, the bulls will look to ride the current rally towards the 150.32 resistance or higher to the 151.95 resistance. On the other hand, the bears will target long-term profits at around 148.26 or lower at the 147.22 support.
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