The Yen Remains at the Mercy of External Factors

Japanese Yen Forecast:

JPY Forecast: Neutral

• dollar index (DXY) is coming back to life as demand for safe havens increases amid the Middle East conflict.
• Fed officials say higher yields will be a positive in the fight against the financial crisis. inflation.
• The situation in the Middle East and the actions of policymakers at the US Federal Reserve will likely drive price trends over the coming week.
• Learn more price action,chart patternandmoving average, Please checkDailyFX Education series.

read more: EUR/USD price prediction: EUR/USD shows new values ​​every week, 200-day moving average comes into view

week review

This has been another interesting week for the Japanese Yen, especially the Euro, which has fallen over 2% and is down about 370 pips to just below the 160.00 level. This is a surprising move given that this week we heard categorical remarks from Bank of Japan Monetary Policy Committee member Seiji Adachi that Japan’s economy was not yet at a stage where it could consider an exit from current policy settings. be.

Source: Refinitiv

The Bank of Japan has not yet shown any significant signs that change is imminent. I have said over and over again that since Governor Ueda has been brought in for this purpose, change will occur. But Adachi’s comments are correct in that one of the key aspects the Bank of Japan monitors is wage growth that outpaces inflation. Given the current tight labor market in Japan, this could happen within a few months, assuming the current situation remains unchanged. I believe that is when the Bank of Japan changes its stance on monetary policy and will be the most important data point going forward.

The week ahead: External factors moving the Yen pair

After the yen’s significant rise this week, the question on everyone’s mind is whether it will continue to do so. Looking at the depreciation of the Euroyen and USDJPY, it is clear that recent movements are primarily driven by the weakness of the USD and EUR, rather than the Yen.

Despite more data from Japan, we expect this trend to continue next week. I don’t expect these data releases to significantly change the Bank of Japan’s position, even though they may trigger knee-jerk reactions in the short term. The biggest event next week for the Bank of Japan is the expected annual GDP growth rate of -2.1%.

The biggest risk mentioned above is likely to come from future developments in the US and the euro, for which monetary policy is key. Much of the decline in the US dollar and euro comes from expectations that interest rate cuts will occur sooner than previously expected in 2024. As of earlier today, market participants were pricing in a rate cut of up to 125bps by the ECB in 2024, which largely explains why. A decline was seen in the euro yen.

The US side has given a similar outlook on the probability of a rate cut, and next week is likely to be more volatile. Given that NFP data and ISM services data will be released next week, both remain concerns for some Fed members, and at this stage they look like the biggest threat of inflation rising again. If these two data releases fail significantly, we could see some real volatility.

For all market moving economic releases and events, DailyFX Calendar

Technical outlook and final thoughts

From a technical perspective, USDJPY has been trending lower since November 13th, making lower highs and lower lows. As it stands, USDJPY is supporting the 100-day moving average, resting at 146.50 and continuing its downside break towards the key psychological level of 145.00.

If USDJPY moves higher from here, there is resistance above 148.00 and a resistance level at 149.00. This may actually be better, increasing the risk-to-reward ratio for potential shorts. A structural change at this stage will only materialize if the daily candlestick moves above the 149.60 handle. This means any potential bearish setup is invalidated.

USD/JPY Daily Chart – December 1, 2023

Source: TradingView

Focusing on the Euroyen, as mentioned above, today’s decline accelerated mainly due to the re-factoring of the ECB interest rate cut in 2024. Similar to USDJPY, EURJPY is testing the 50-day moving average in an important support area just below the 159.00 level.

Below that, the 100-day moving average is resting at 158.63, and a breakout of that level opens up a potential fall to the 200-day moving average at 153.68.

Alternatively, further upside from here could bring the 161.85 resistance level into focus, offering potential short sellers the best risk-reward opportunity.

euro/yen Daily Chart – December 1, 2023

Source: TradingView

Key levels to note:

support level

resistance level

IG client sentiment

A quick look at customer sentiment on IG shows that retail traders are short EURJPY, with 73% of retail traders holding short positions. Given the contrarian view on crowd sentiment adopted by DailyFX, is this a sign that his EURJPY could continue to rise?

If you want to know more about EURJPY customer sentiment and how to use it, please download the link below.

Author: Zain Vawda, Market Writer DailyFX.com

Contact and follow Zain on Twitter: @zvawda