7) USDJPY

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

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

• Resistance: 116.30, 116.70, 118.50
• Support: 114.30, 113.40, 112.60

Technically, for the currency pair yesterday it looks very much like a descending triangle pattern was implemented and the currency pair tested the 115.00 support level. However, the fundamental assessment also provides an answer to the downward impulse. A combination of factors continued to drive the markets into risk-averse states, which brought financial flows into the safe yen. The market is still reducing risk appetite, the value of the Fear-Greed indicator continues to decline. As a result, it dropped to 49 yesterday, which is still a neutral state, but closer to fear.

The reasons for fear, all the same, as recently as Sunday, we noted that alarming news about the new Omicron strain was still getting in the media. So now many associate the next wave of risk aversion precisely with the widespread distribution of Omicron throughout the world. More than 1.1 million new COVID cases were recorded in the US yesterday in the last 24 hours. The CDC recommends the use of 'better masks' for continuous wear against the Omicron strain. Plus disturbing news from China. Two cities in China have introduced lockdown Tianjin Hebei Province and Anyang Henan Province. A number of metropolitan areas in China have announced tightening restrictions, including Zhengzhou, the capital of Henan province, and Shenzhen, amid local cases of infection with the new Omicron strain.

In terms of macro data, neither the US nor Japan published anything yesterday. The Bank of Japan's Quarterly Review was released today, showing that more Japanese households are expecting price increases in both one-year and five-year periods. Also, Bank of Japan officials forecast inflation to rise by almost 2% in the second quarter of 2022 due to higher energy prices and supply chain disruptions. Until then, BoJ confirms that it will use all available tools to restart the economy and spur inflation. In other words, the printing press will not be shut down anytime soon, which will continue to put strong pressure on the yen. However, we continue to observe a strong correlation on the Nikkei 225 and S&P 500 stock indices, knowing that the reporting season is starting in the US now, and also that traditionally January-February are very negative months for the stock market, we can assume that further sales will be observed on stock markets of the USA and Japan, which will bring additional financial flows into the safe yen.

Nonetheless, the prospect of faster Fed tightening may continue to act as a tailwind for US and dollar yields. In fact, the money markets have fully appreciated the possibility of a possible Fed hike in March and are expecting four interest rate hikes by the end of 2022. Consequently, the market's attention will remain focused on the hearings on the candidacy of Fed Chairman Jerome Powell should be later during the American session today.

In addition, the publication of the latest data on consumer inflation in the US on Wednesday will be viewed as new information on the timing and pace of the Fed's policy normalization. This will play a key role in influencing the short-term dynamics of the US dollar price and will give new directional impetus to the currency pair. At the same time, US bond yields and general exposure to market risk may create some opportunities for short-term trading.

Interest rate differentials and the approach to monetary policy are back in vogue. A meta-prediction can be made that the US dollar, thanks to the Fed's promise, will be stronger than the currencies of countries whose rate outlook is static, such as the Bank of Japan and the European Central Bank. In other words, we will observe a more bullish market on the currency pair throughout 2022.

Tomorrow:
- US Core Consumer Price Index (CPI) (YoY) (Dec)
- US Consumer Price Index (CPI) (YoY) (Dec)
Thursday:
- The number of initial claims for unemployment benefits in the United States
- Producer Price Index (PPI) (MoM) (Dec)
Friday:
- Baseline Retail Sales (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 10-year bond yield climbed to 1.80% on Monday for the first time since January 2020. The difference between the yields on 10-year US and Japanese bonds is widening, which will continue to be the main upward driver. Plus, do not forget about the Bank of Japan's policy of controlling the yield curve, in which the yield on 10-year Japanese government bonds is close to zero.

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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