7) USDJPY

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

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

• Resistance: 116.30, 116.70
• Support: 114.00, 113.40, 112.60

The currency pair was active and multidirectional yesterday, at the moment it tested the five-year high reached in January, the level of 116.30, but immediately fell off it. But as we can see, the uptrend is still there, even though there are no traders from Japan today. Stronger US CPI data pushed US bond yields higher and supported strong US dollar gains. Also, on the back of fears of more hawkish action by the Fed, the market experienced momentum yesterday to divest from risky assets. The value of the Fear-Greed indicator has decreased to 37.

Data released by the US Bureau of Labor Statistics yesterday showed that the US headline consumer price index rose to 0.6% in January from an expected 0.5% in the prior period. Moreover, the annual rate jumped to a new multi-year high and accelerated to 7.5% in the reporting month. This was above the forecast, indicating an increase to 7.3% from a confirmed 7% at the end of 2021. The core consumer price index (CPI), which excludes food and energy, rose 6% from 5.7% in December and slightly outpaced the forecast of 5.9%. Monthly growth was 0.5% for the general index and 0.6% for the main one.

However, the dollar experienced some intraday selling, although the dip was quickly bought back after St. Louis Fed President James Bullard said the US Fed should raise rates by 100 basis points over the next three meetings. He also announced the need to begin the process of reducing the Fed's balance sheet in the second quarter. His comments reinforced fears of a Fed rate hike and lifted 10-year US Treasury yields to their highest level since July 2019.

Treasury bond yields soared across the entire yield curve. The 2-year Treasury yield rose 24 basis points to 1.59%, returning to December 2019 levels. The benchmark 10-year yield rose 11 points to 2.035%, the first time since July 2019 it closed above 2%. The 5-year yield increased 15 basis points to 1.95%, while the 30-year yield rose 7 basis points to 2.30%. Yields on all but 30-year Treasury bonds are now higher than they were at the start of the Covid pandemic in March 2020.

However, it is worth noting that Richmond Fed President Thomas Barkin tried to tame the bulls by saying he would have to be persuaded of the high need for a 50 basis point hike.

However, a late sell-off in US equities benefited the safe-haven Japanese yen and saw the currency pair pull back modestly from its daily high. The currency pair finally settled at 116.00 and attracted fresh buying during the Asian session today. The divergence of the monetary policy of the Fed and the Bank of Japan, as well as the difference in assessments of the situation by officials of the BoJ and the Fed, favored bullish traders and continues to support the upward direction. This, along with widening US-Japanese bond yield spreads, continued to act as a tailwind for the currency pair.

Also positive news for the currency pair's gains was the release of the number of Americans filing new jobless claims, which dropped 16K to 223K in the week ended February 5, the lowest in five weeks and below market expectations of 230K. thousand as the impact of the spread of the COVID Omicron strain began to wane.

In terms of geopolitics, Dmitry Kozak, deputy head of the Russian presidential administration, said that the negotiations in the Normandy format in Berlin ended inconclusively. US President D. Biden called on all US citizens to immediately leave the territory of Ukraine, which seems to hint at the imminent start of hostilities. However, as has been written many times, while negotiations are underway, the conflict is unlikely to move into an active phase. Although now everything can change very quickly, we continue to follow all the news.

Today we are waiting for the Fed's Monetary Policy Report. Also in Japan, the day off is National Day.

Forecasts for the currency pair have not changed. The yield of benchmark 10-year US bonds in tight terms approached 2%, which leads to an increase in the difference between the yields of 10-year US and Japanese bonds, which continues to be the main upward driver. Plus, let's not forget the BOJ's yield curve control policy, where the yield on 10-year Japanese government bonds is close to zero, the BoJ recently once again confirmed its commitment to this policy.

Against the backdrop, one can make a meta-prediction that the US dollar, thanks to the Fed's promise, will be stronger compared to the currencies of countries whose rate prospects are static, including Japan. In other words, we will observe a more bullish market for the currency pair throughout 2022.