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Japanese Yen Outlook: JPY Poised for Breakout Ahead of BoJ Rate Decision

Japanese Yen Outlook: JPY Poised for Breakout Ahead of BoJ Rate Decision

Warren Venketas, Analyst

USD/JPY ANALYSIS

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JAPANESE YENFUNDAMENTAL BACKDROP

The related safe-haven Japanese Yen rallied this week with the Evergrande crisis gaining traction and devastating global markets. Investors are exhibiting risk averse behavior which may be premature but prefer to err on the side of caution. The Japanese bond market echoes this sentiment as foreign investment increases (see graphic below) and may continue should the current uncertain macroeconomic backdrop endure.

foreign investment japanese government bonds

Source: Refinitiv

JAPANESE AND U.S. CENTRAL BANKS TO MEET TOMORROW

According to Refinitiv, there is a 97.79% chance of the BoJ keeping rates unchanged which then shifts focus to the Federal Reserve meeting tomorrow – see calendar below.

USD/JPY economic calendar

Source: DailyFX economic calendar

Markets will be tuned in to an impending taper which and guidance on how the Fed will go about recent data which include inflation figured far exceeding the average 2% target (yellow), lackluster jobs data (purple) and lingering COVID-19 concerns (pink) – refer to graphic below. This could delay a quicker start to tapering current asset purchases and support additional Yen strength.

U.S. economic data

Source: Refinitiv

USD/JPY TECHNICAL ANALYSIS

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USD/JPY Daily Chart:

USD/JPY daily chart

Chart prepared by Warren Venketas, IG

The daily USD/JPY chart above outlines the weeks fall as price action tests the symmetrical triangle support line (black). Prior attempts to break and close below the 38.2% Fibonacci 109.25 (Fibonacci taken from June 2015 high to June 2016 low) level have been unsuccessful but a confirmation close below this area of confluence may open up further downside opportunity.

Key resistance levels:

  • 110.00
  • 100-day Exponential Moving Average (EMA) - yellow

Key support levels:

  • 109.25 – 38.2% Fibonacci level
  • 109.00
  • 108.72 – August swing low

IG CLIENT SENTIMENT FAVORS SHORT-TERM DOWNSIDE

USD/JPY Bullish
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily -7% 0% -3%
Weekly -12% 24% 6%
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IGCS shows retail traders are currently net long on USD/JPY, with 55% of traders currently holding long positions (as of this writing). At DailyFX we take a contrarian view on sentiment which suggests further downside on the pair.

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--- Written by Warren Venketas for DailyFX.com

Contact and follow Warren on Twitter: @WVenketas

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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