7) USDJPY

Technical Analysis (MA, RSI, STOCH, MACD, ADX)

• M30 - DOWN
• H1 - DOWN
• H4 - DOWN
• D1 - DOWN
• W1 - UP
• MN - UP

• Resistance: 116.70, 118.50
• Support: 115.40, 113.40, 112.60

The currency pair was trading very actively this week, at the beginning of the week, in a thin market, the currency pair renewed the five-year high level of 116.30, after which it immediately 'went sideways'. The movement of the currency pair from Wednesday to Friday, technically, can be marked as a descending triangle, with a high potential for a downward impulse to a depth of 80 pips. In total, the currency pair traded in the range of 145 pips during the week, while closing +60 pips. At the end of Friday, the market remains in a neutral state, the value of the Fear-Greed indicator points to 52.

Periodically, the media get disturbing news about the new strain-Omicron, but globally, optimism now prevails. Every day there is more and more evidence that the Omicron COVID-19 strain is less dangerous than previous strains such as Delta. This option is very contagious, so it puts a lot of pressure on health systems, but the markets are encouraged by the reluctance of governments of different countries to impose very tough restrictions, in any case, the authorities react, but much more restrained than before. All of this undermines the demand for safe assets like the Yen and the US dollar, bringing fundamental drivers to the fore.

From the macro data, Japan has barely released any important data this week. Annual inflation in Tokyo was slightly higher at 0.8% in December, but the core consumer price index (CPI) in Tokyo remained unchanged at -0.3%, which gives no reason for the Bank of Japan to change its super-soft monetary policy or talk about an increase in interest rates. rates. Which has been at record lows for six years now and is -0.1%. Total household expenditures in November were much worse than expected at -1.3%, which is more than two times worse than the October data. We would also like to draw your attention to the fact that the Japanese stock index Nikkei 225 continues to show a high correlation with the movements of American stock indices.
Also, BOJ officials this week said the BoJ does not have the tools to counter the Yen's plunge, and they noted that if the fall is slow, it will be acceptable, as Japan is far from the target of sustained inflation of 2%. If inflation in Japan were above 2%, officials would consider the yen's weakness undesirable. Plus, it was almost unnoticed that the Bank of Japan made it clear that it would not strive to expand the balance sheet.

The US has published quite a lot of data this week. Here is the hawkish minutes of the December Fed meeting, in which almost all politicians agreed on the need to reduce the Fed's balance sheet immediately after the first increase in interest rates. This is the first reduction in the bank's balance sheet by $ 8.5 billion. Markets took this as further indication that the Fed intends to continue to pursue tighter monetary policy.
After a very positive report from ADP, but market participants were waiting for the official NFP data, which was very ambiguous.
Nonfarm Payrolls data in the US on Friday was a big disappointment for the second month in a row. Only 199,000 jobs were created in December, less than half of the projected 400,000. Average hourly wages rose 4.7% in December and 5.1% in November as employers continue to push workers to return, and of course they try to offset high inflation. Nonetheless, the unemployment rate improved markedly, falling to 3.9% from 4.2% last month.

The first reaction of the market, of course, is a sale, but after a more detailed study, many revised their attitude. Of course the overall NFP was weak, but the labor market as a whole strengthened in December, as evidenced by declining unemployment and rising wages. This may be enough for the Fed to raise interest rates in March.

There will be many important events and publications around the United States in the coming week. Japanese data for the coming week is capped by Eco Watcher's December survey and November's coincidence and leading indexes. These sentiment polls will not impact trading. December producer prices will interest the Bank of Japan, but not the markets.

Monday:
Tuesday:
- Speech by the head of the Federal Reserve, Mr. Powell USD
Wednesday:
- US Core Consumer Price Index (CPI) (YoY) (Dec)
- US Consumer Price Index (CPI) (YoY) (Dec)
Thursday:
- Number of initial applications for unemployment benefits in the United States
- Producer Price Index (PPI) MoM (Dec)
Friday:
- Baseline Retail Sales Index (MoM) (Dec)

The forecasts for the currency pair are unchanged, the rise in US Treasury yields and inflation are the dominant factors for the currency pair. The yield on the 10-year bond on Friday topped the March 31 high of 1.753%.
The fall from the 116.00 level is likely to herald a period of consolidation. Fed Chairman Jerome Powell and other officials have not touched on the normalization of monetary policy, and markets have little to rely on other than past announcements.

In other words, the upward direction for the currency pair is still the main one. However, now it is possible that we will see either a period of consolidation, or even a slight downward correction.


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