JAPANESE YEN FORECAST:
JAPANESE YEN FORECAST: NEUTRAL
- Dollar Index (DXY) Roars Back to Life as Safe Haven Demand Grows Due to the Conflict in the Middle East.
- Fed Officials Say that Higher Yields Are a Positive in the Fight Against Inflation.
- Developments in the Middle East and Federal Reserve Policymakers Will Drive Price Action in the Week Ahead.
- To Learn More About Price Action,Chart PatternsandMoving Averages, Check out theDailyFX Education Series.
READ MORE: Short USD/JPY: A Reprieve in the DXY Rally and FX Intervention by the BoJ
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WEEK IN REVIEW
It’s been an intriguing week for the Japanese Yen but one which has done little to provide clarity on the path forward. The Bank of Japan (BoJ) meeting this week saw the Central Bank tweak its Yield Curve Control (YCC) policy in what is another small step to policy normalization. The BoJ maintained its target for the JGB 10Y yield at around 0% but redefined 1% as the upper band rather than a hard cap as had previously been the case. The BoJ by doing so sent what markets perceive as a dovish message as it intimated that the BoJ may not immediately intervene as the Yield approaches 1%. USDJPY in the aftermath continued its advance beyond the 150.00 mark and beyond. Looking at the probability of a rate hike from the BoJ, and market participants are pricing in a 70% of a hike in April 2024.
Source: Refinitiv
The BoJ however appear to be in luck, as the week progressed the US Dollar lost some of its early week muster while the reduction in the yield differential also helping the Japanese Yen. The FOMC meeting from the US added to this as well as market participants began to ramp up their bets that the Fed rate hike cycle is done. USDJPY stopped short of last year's high and began to retreat before a lackluster NPF and Jobs report on Friday which helped push USDJPY back below the 150.00 mark.
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THE WEEK AHEAD: FED SPEAKER AND TECHNICALS TO DOMINATE
Following a blockbuster period of high impact data, the calendar will be significantly lighter next week. We have no high impact data releases from Japan, but we will get the BoJ meeting minutes which could provide further insight as to the thought process of policymakers and their outlook moving forward.
The US will also see a slowdown in data releases with speeches from Fed Chair Powell on both the 8th and 9th of November before the Michigan Consumer Sentiment data comes into focus. It will be interesting to hear the comments of Fed Chair Powell and whether he will push back on the dovish narrative which seems to be building around future rate hikes. After Friday's jobs data however, the Fed Chair may even unintentionally add further fuel to the current dovish narrative.
If this is to continue the BoJ may be the biggest winner as USDJPY may enter another phase of consolidation facilitated by continued US Dollar weakness. Now obviously there are other factors which could rear their head once more such as the conflict in the Middle East. This for me is one of the few things which could help prop up the US Dollar should it show signs of contagion next week and should continue to be monitored.
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TECHNICAL OUTLOOK AND FINAL THOUGHTS
Looking at the technical perspective and the weekly chart looks on course for a shooting star candle close which could finally be a sign of further downside. Jut observing the Candles on a weekly timeframe and the large wicks resemble the candles which preceded the FX intervention by the BoJ in 2022. Is this to be seen as a sign or just a return of some volatility in USDJPY?
USD/JPY Weekly Chart – November 3, 2023
Source: TradingView
Looking at the daily chart below and as you can see USDJPY failed to break the 2022 high falling short by about 20-pips. At the moment we do require a daily candle close below the 149.00 handle which was the previous swing low and would signal a change in structure. There is the issue of support just below this level with the 50-day MA resting at 148.63 and this could facilitate a short-term pullback before a possible downside continuation. Any move to the upside will obviously provide potential sellers a better risk to reward opportunity with the 150.00 mark remaining a key pivot point for the pair.
USD/JPY Daily Chart – November 3, 2023
Source: TradingView
Key Levels to Keep an Eye On:
Support Levels
- 149.00
- 148.63
- 146.54
Resistance Levels
- 150.00
- 150.80
- 152.00
IG CLIENT SENTMENT
Taking a quick look at the IG Client Sentiment Data which shows retail traders are 81% net-short on USDJPY. Given the contrarian view adopted here at DailyFX, is USDJPY destined to rise back above the 150.00 mark?
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| Change in | Longs | Shorts | OI |
| Daily | 4% | -7% | -4% |
| Weekly | 93% | -36% | -19% |
Written by: Zain Vawda, Market Writer for DailyFX.com
Contact and follow Zain on Twitter: @zvawda
