- The USD/JPY embarked on a notable descent at the outset of Friday's trading session.
- However, as the jobs report revealed an unexpectedly robust performance, the US dollar staged a rally against the Japanese yen.
- This development has prompted optimism regarding the possibility of a recovery. Although there is ongoing speculation about the Bank of Japan normalizing interest rates, it remains a somewhat distant prospect at this point.
More significantly, the Federal Reserve appears to have gained yet another incentive to maintain a cautious stance, as a robust labor market suggests that inflation is likely to persist as a challenge. The formation of a hammer candlestick during Friday's session lends technical support to the notion that there may be willing buyers in the market. Should the market successfully breach the ¥145 level, it opens up the prospect of advancing toward ¥147, the point from which the recent downturn commenced. However, the belief that the Bank of Japan will take significant action remains speculative, and it's likely only a matter of time before an upward rally materializes. Conversely, if the market were to breach the lower boundary of the wipeout candlestick from Thursday, it would signal the likelihood of a new downtrend.
Challenges in the Face of Negative Rates
While the US dollar has grappled with adversity against several currencies, the Japanese yen presents a unique scenario, characterized by persistently negative interest rates. In the coming weeks, the outlook hinges on crucial events, with particular attention directed toward the Bank of Japan's interest rate decision and statement. Additionally, market participants must navigate the diminishing liquidity characteristic of the holiday season, where festive considerations tend to eclipse market dynamics. Nevertheless, the Bank of Japan's forthcoming meeting later this month stands out as the next major driver, closely followed by the ever-important bond yields that perennially influence this currency pair.
In the end, the US dollar embarked on a downward trajectory initially but reversed course on the back of robust job figures. This has sparked optimism for a potential recovery, with the Bank of Japan's actions still a matter of conjecture. The Federal Reserve's stance remains closely tied to the strength of the labor market and its implications for inflation. Technical signals suggest the possibility of buyer interest, but the market's next direction hinges on key events, including the Bank of Japan meeting and bond yields, all against the backdrop of holiday-induced liquidity constraints.
Potential signal: If the market sniffs out that the BoJ can’t do much on the 19th, this pair goes higher. A daily close above the 145.20 level has me buying again. I would have a stop at 143.90, and a target of 147.13 above.
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