7) USDJPY

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

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

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

The currency pair was mixed yesterday, trading between 115.50 and 115.00 levels. However, there was no clear direction of movement. Thus, yesterday the currency pair closed the trading day at the same mark from which it started. Such uncertainty for the currency pair was due to instability in the geopolitical arena, as traders sit idly by in anticipation of a possible increase in tensions associated with the prospects of a Russian invasion of Ukraine. Market sentiment continues to move closer to extreme fear, making all safe-haven currency in demand. The value of the Fear-Greed indicator has again decreased to 32.

Broad demand for protection dominated financial markets on Monday, further reinforced by a statement by US President Joe Biden, who on Sunday told his Ukrainian counterpart Volodymyr Zelensky that the US would respond quickly and decisively if Russia invaded Ukraine. Geopolitical tensions also escalated after a report allegedly confirming that Russia intended to invade Ukraine. Ukrainian President Volodymyr Zelensky has urged Ukrainians to fly the country's flags over buildings and sing the national anthem in unison on February 16, a date some Western media have cited as the possible start of a Russian invasion. However, the comments were interpreted as if the President of Ukraine had been officially informed that Wednesday would be the day of the attack.

The markets reacted in a similar way and sold off risky assets, but not as actively as they should have if a real invasion had actually taken place. There was a spirit of doubt in the air of the market, and moves were limited to what looked more like a false start. Shortly after the initial reflex actions, a Ukrainian official claimed that V. Zelensky did not predict the attack on the 16th, but instead reacted skeptically to foreign media reports.

On the other hand, the US dollar benefits both from the lack of risks and from the prospect of a faster tightening of the Federal Reserve. The US dollar index hit a two-week high on Monday not only because of worsening war prospects, but also because of comments from St. Louis Federal Reserve President James Bullard, who repeated calls for a faster Fed rate hike. Louis Fed President James Bullard said yesterday again that he was ready to consider raising interest rates by 100 basis points by July 1, citing inflation reports that show continued expansion of inflationary pressures. Markets are now pricing in a near 100% chance of up to 7 Fed rate hikes of 0.25% in 2022.

In terms of macro data, neither Japan nor the US published anything important yesterday. Today, Japan published a preliminary GDP indicator for the 4th quarter of 2021, which amounted to +1.3% q/q against the expected 1.4% and -0.9% in the previous quarter. After that, the General Secretary of the Cabinet of Ministers of Japan, Matsuno Hirokazu, said that GDP growth was due to the lifting of the state of emergency in connection with the coronavirus and the improvement of the supply chain from Southeast Asia.

Also today, Reuters reported that Bank of Japan Governor Haruhiko Kuroda said the BoJ's offer to buy unlimited government bonds reflects his view that the country's recent rise in long-term bond yields was driven by factors unrelated to the Japanese economy. Kuroda clarified that BoJ does not plan to carry out such operations often, but only as needed. Recall that yesterday the Bank of Japan carried out a market operation aimed at limiting the growth of the yield on 10-year Japanese government bonds JGB, which at the moment rose to 0.25%. This operation had the expected effect, as the yield on 10-year JGB fell to 0.22% during the day.

H. Kuroda reiterated that the Japanese economy requires a loose monetary policy for many years

The market will continue to be dominated by broad demand for protection. Traders will continue to focus on geopolitical developments, which will continue to play a key role in shaping broader market risk sentiment. However, do not forget about a number of important macro data for the US and about an important publication on Japan on Friday.

Today:
- US Producer Price Index (PPI) (YoY) (Jan)
Wednesday:
- Core Retail Sales (MoM) US (Jan)
- US Retail Sales (MoM) (Jan)
- Publication of FOMC minutes
Thursday:
- Number of Initial Jobless Claims in the US
Friday:
- Japanese National Consumer Price Index (CPI) (YoY) (Jan)

The couple is again at the mercy of a wide demand for protection, again geopolitics, again the media are screaming about a new war in Eastern Europe. Against this background, the Risk-OFF phase, and a wide demand for safe-haven currency, including the safe Yen. Which may in some short term put pressure on the currency pair, but will not be able to change the main uptrend.

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.

Amid all this, a meta-prediction can be made 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.