7) USDJPY

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

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

• Resistance: 118.70
• Support: 115.50, 115.00, 114.00

Yesterday, the currency pair continued its ascent, which started last Monday, having overcome the psychological mark of 115.00, and went further. Yesterday it overcame 118.00 and did not stop, now the currency pair has tested the multi-year resistance level 118.50, which seems to have held back the currency pair. The upward initiative has faded slightly, but it is too early to say that the growth has been stopped. The climb was driven by a slight geopolitical upbeat plus hawkish anticipation for tomorrow's Fed meeting against the dovish BoJ sentiment. The market seems to be gradually starting to bounce back, according to indicators, the market is still in the phase of risk rejection, the value of the Fear-Greed indicator is gradually increasing, now it points to 16.

Russia and Ukraine were the most optimistic about the weekend talks, which in turn bolstered investor confidence and reduced demand for traditional safe-haven assets. According to Ukrainian negotiator Mykhailo Podolyak, the latest round of peace talks has been suspended and will resume today. However, optimism remained limited as the Russian-Ukrainian conflict continued to escalate. In fact, on Sunday, Russia launched a missile attack on a large Ukrainian military base near Lvov, which is close to the border with Poland. In addition, a Kremlin spokesman said on Monday that all the goals of Russia's special military operation in Ukraine will be fulfilled in full and within the specified time frame.

At the same time, the EU Commission announced another wave of sanctions against Russian oligarchs and organizations. The US, on the other hand, has told its NATO allies that China has expressed its willingness to provide military and economic support to Russia.

In addition, the latest outbreak of COVID-19 in China has slightly undermined the demand for risky assets. China is closing the Shenzhen city of 17.5 million inhabitants, which is the largest manufacturing center, until March 20. However, the Chinese government eased concerns about a likely slowdown in the world's second largest economy due to a new wave of COVID-19. Although Asian stock markets remain in the red due to fears about further consequences and new lockdowns.

The recent monstrous rise in commodity prices following Russia's military sting operation in Ukraine is fueling fears of a major inflationary shock. This, in turn, has ratcheted up bets that the Fed's tightening cycle will soon begin and pushed U.S. bond yields higher, to their highest levels since June 2019. The benchmark 10-year US Treasury yield is now 2.07% after peaking at 2.14%. The US dollar was also seriously supported by the expectations of the imminent start of the Fed's policy tightening cycle. Markets seem to be convinced that the worsening situation in Ukraine is unlikely to prevent the US central bank from raising its target interest rate to curb inflation.

Tomorrow, the US Federal Reserve will announce its monetary policy decision and is expected to announce the first rate hike since 2018. The focus remains on whether the central bank will raise rates by 25 basis points or 50 basis points.

In terms of macro data, nothing has been released in either the US or Japan. We can highlight additional dovish statements from BoJ officials, and now they have only become more frequent, and all this in the run-up to the BOJ meeting on Friday.

Almost everyone is confident that the Bank of Japan (BoJ) will maintain its current accommodative policy at its meeting on Friday. It is worth recalling that the head of the Bank of Japan, Haruhiko Kuroda, recently ruled out the possibility of normalizing policy to combat rising inflation. Japanese Prime Minister Kishida said today that inflation has so far remained limited, but added that higher energy prices could be starting to weigh on the economy. The head of the ruling Liberal Democratic Party of Japan, Tatsuo Fukuda, said today that in order to soften the economic blow of the Ukrainian crisis, the Japanese government should prepare a new package of stimulus measures.

The divergence in views on the policy of the Bank of Japan and the Fed further undermined the yen and contributed to the strong movement of the currency pair up.

On the other hand, however, Reuters today published comments by an unnamed senior Bank of Japan official. Who stated that once Japan hits the inflation target of 2% sustainably and steadily, the Bank of Japan will no longer need massive stimulus. The Bank of Japan will continue to support massive monetary stimulus as it will likely take time to hit inflation targets as Japan's economy is still halfway through its recovery from the effects of the pandemic.

Several central banks will announce their monetary policy decisions this week, including the Fed and the Bank of Japan. If everything is clear with BoJ and no one expects an increase in interest rates from it. On the contrary, the Bank of Japan is expected to keep its main rate -0.1% at the meeting on Friday. Japan's national consumer price index was 0.5% year on year in January and is expected to fall to 0.3% when February data is released on March 17.

Today:
- US Producer Price Index (PPI) (MoM) (Feb)
Tomorrow:
- Core Retail Sales (MoM) (Feb)
- Retail Sales (MoM) (Feb)
- Fed rate decision
- FOMC press conference
Thursday:
- The number of initial claims for unemployment benefits in the United States
Friday:
- Nationwide Core Consumer Price Index (CPI) (YoY) (Feb)
- Bank of Japan Interest Rate Decision
- Press conference of the Bank of Japan

Fundamental forecasts for the currency pair have not changed. The yield of benchmark 10-year US bonds has repeatedly exceeded the psychological level of 2% this year, and this 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. Also, recent data on inflation in Japan showed that it is still not growing, which confirms the words of the head of the BoJ about the inability to even talk about tightening monetary policy in the coming years.

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.