- Risk aversion was in favour of a downward correction for the USD/JPY pair, with losses extending to the support level of 147.08 before stabilizing around 147.60 at the start of the Wednesday session ahead of the Federal Reserve's important announcement.
- Obviously, the US dollar had been supported as a safe haven against many other major currencies at the start of this week, amid rising geopolitical tensions.
- Ultimately, with the killing of three US military personnel in the Red Sea conflict, which increased the likelihood of military escalation.
A drone attack on an American missile base in Jordan, believed to have been carried out by Iranian rebels, killed three American soldiers over the weekend, prompting the United States to consider a counterattack. Clearly, the escalating conflict in the region will exacerbate trade complexities as trade routes are already blocked by pirates; With this in mind, the market mood has turned sour. Furthermore, additional tailwinds for risk aversion supported the US dollar, in the form of central bank speculation. Ahead of the US Federal Reserve's interest rate decision on Wednesday, traders were afraid to place hawkish bets.
On the economic side, American consumer confidence rose in January to the highest level since the end of 2021, as Americans became more optimistic about the economy and the Labor market amid more optimistic views on inflation. Recently, the data published on Tuesday showed that the Conference Board's sentiment gauge rose to a reading of 114.8 from a revised reading of 108 the previous month. Moreover, the January figure matches the average estimate in a Bloomberg survey. The measure of current conditions rose to the highest level since March 2020. Also, the measure of expectations rose to the highest level in six months. Eventually, consumers expected inflation to average 5.2% in the next 12 months, the lowest level since March 2020.
Commenting on the results, Dana Peterson, chief economist at the Conference Board, said in a statement: “The increase in consumer confidence in January likely reflects slowing inflation, expectations of lower interest rates in the future and generally favourable employment conditions as companies continue to hoard workers.”
Meanwhile, the third straight monthly increase in confidence suggests that at least some of the momentum in household spending late last year will continue. Resilient demand, combined with a healthy Labor market and improving inflation expectations, has the potential to keep the economy on a growth path.
USD/JPY Technical Analysis and Expectations Today:
According to the performance on the daily chart below, there is neutrality in the performance of the price of the currency pair, the US dollar against the Japanese yen (USD/JPY), and moving towards the resistance level of 148.60 supports the upward channel and increases the next upward expectation, the psychological resistance level of 150.00. clearly, this may happen considering a tough tone from the US Central Bank today and the figures. Moreover, American jobs by the end of the week. On the other hand, moving towards the support level of 146.20 is a first break of the ascending channel, and a downward shift requires moving towards the support level of 144.70. Finally, we still prefer to buy USD/JPY from every falling level.
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