USD/JPY Technical Analysis: Moving Steadily

Mahmoud Abdallah

USD/JPY price did not do much by testing the psychological resistance 115.00 at the beginning of last week’s trading, as the Japanese yen returned to reap the gains. The currency pair suffered from a selling week, because of which it moved towards the support level 113.60. The US dollar pairs are awaiting an important event this week, which is the US Federal Reserve's announcement of its monetary policy decisions. The meeting signals are important for the future of raising US interest rates this year.

Japan posted a smaller-than-expected trade deficit in December. And exports did not decline as expected. After rising 20.5% year-on-year in November, it slowed to 17.5% in December. Imports slowed more than expected, to 41.1% from 43.8%. This is very much in line with the seasonal pattern where December often sees an improvement over November.

Last year, Japan posted an average monthly trade deficit of 122.7 billion yen. In 2020, the average monthly trade surplus was JPY 32 billion. An average trade deficit of about 140 billion yen was recorded in 2019. However, during this period, Japan continued to run a current account surplus, driven not by trade in goods and services, but by the return on foreign investment.

On the other hand, for the first time since 2014, the Bank of Japan did not say that inflation risks are tilted to the downside. Instead, he said risks were broadly balanced at the conclusion of the policy meeting earlier this week. However, the December CPI reading was disappointing. The headline rate increased to 0.8% from 0.6%. The average in a Bloomberg survey looked for a 0.9% increase. The core rate, which excludes fresh food, was unchanged at 0.5%, defying expectations for a slight rise. Even more frustrating was the procedure, which takes away energy as well as fresh food. It fell to -0.7% from -0.6%, which is the worst since last June. Ironically, at a time when the United States, Europe, and many emerging market countries are grappling with price pressures, without energy and fresh food prices, Japan would be in deflation.

Regarding inflation, the current global fear factor, and amid the debate over inflation in the United States, US Treasury Secretary Yellen expressed her pessimistic stance, noting that with the virus under control, price pressures would ease. She reiterated that she expects general inflation to end near 2%. President Biden's endorsement rating was affected by inflation concerns. He recently claimed that this was the Fed's responsibility. Yellen retreated from it a little and pointed out that it is a joint responsibility between the administration and the central bank.

According to the technical analysis of the pair: The price of the USD/JPY currency pair is moving steadily within an opposite bearish channel that was formed recently. Moving towards the psychological support 113.00 will bring the bears more strength to control the general trend. The return of the breach of the psychological resistance 115.00 is important for the return of the currency pair in its ascending channel, which contributed to testing the top of 116.35 at the beginning of the new year's trading. The price of the dollar-yen pair may remain in a narrow range until the US Federal Reserve announces its monetary policy decisions this week.

Mahmoud Abdallah
Mahmoud has been working fulltime in the Foreign Exchange markets for 12 years. Offers his analysis, articles and recommendations at the most renewed Arabic websites specialized in the global financial markets, and his experience gained a lot of interest among Arab traders. Works on providing technical analysis, market news, free signals and more with follow up for at least 12 hours a day, and aims to simplify forex trading and the concept of trading for his audience.

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