Federal Reserve VS Bank of Japan
The continuation of the monetary policy discrepancy between the hawkish US Federal Reserve and the Bank of Japan, which has negative interest rates, supports bulls’ control in the direction of the currency pair US Dollar against the Japanese Yen (USD/JPY), which is closest to testing the psychological resistance of 150.00 nearby, that is being raised near the date of Japanese intervention in the markets to prevent further collapse of the currency, which may harm the Japanese economy that depends on exports.
In recent trading, in addition to its demand as safe havens, the US dollar strengthened after Purchasing Managers' Index (PMI) data indicated growth in the US economy in October, in contrast to the economies of the Eurozone and the United Kingdom. According to Forex trading, the dollar rose against the British pound and the euro after the S&P Global Services Purchasing Managers' Index reading of 50.9 in October. However, this reading has defied expectations for a decline from 50.1 in September to 49.8. contrarily, the manufacturing PMI came in at 50, up from 49.8 in September and higher than the expected 49.5. on the other hand, the Britain's services PMI of 49.2 and manufacturing PMI of 45.2, both of which were more positive than the eurozone's 47.8 and 43 respectively.
Moreover, recent indicate that the US economy continued to outperform the Eurozone and UK economies at the beginning of the fourth quarter, even though the US saw larger interest rate rises. The latest survey results support the so-called US exceptional trade, which has boosted the dollar's recovery since July.
Recently, the report from S&P Global noted that the US economy was seeing a moderate outcome, with demand conditions improving at manufacturers for the first time since April, while service providers saw a slower decline in new orders. At the same time, inflationary pressures eased. The US economy is growing, and inflation is falling, which reduces the possibility of a recession despite rising interest rates.
Commenting on this, Chris Williamson, chief business economist at S&P Global Market Intelligence, says: “Hopes for a smooth decline in the US economy will be encouraged by the improvement in the situation that we witnessed in October.” Adding, “Future production expectations also rose despite heightened geopolitical concerns and domestic political tensions, rising to a combined highest level in almost a year and a half.” Therefore, This is bullish for US yields and the US dollar.
The same cannot be said for the Eurozone and the UK where PMI surveys point to an ongoing economic problem. Commenting on this, Simon Harvey, head of FX analysis at Monex, says: “Eurozone and UK PMIs continue to point to weaker demand expectations, with the Eurozone report proving particularly worrying, and the US looking impressive in comparison.” Adding, “For now, the PMI data means the story of American exceptionalism remains intact.” The analyst adds that better future growth prospects in the United States keep the dollar supported near its strongest levels this year.
USD/JPY Outlook & Expectations
- The general trend of the USD/JPY remains sharply upward as long as the Bank of Japan adheres to its current policy, taking into account that a change in its policy or intervention in the markets to prevent the collapse of the yen will renew strong and sharp selling operations for the currency pair, with which the trend will change to bearish within a limited number of hours.
- Currently, the USD/JPY is closest to testing the psychological resistance of 150.00, which confirms the extent of the bulls’ control, and at the same time, the technical indicators are moving towards strong levels of saturation with purchase.
- Finally, we still prefer to think about selling the currency pair from the highs without risk, rather than thinking about buying.
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