7) USDJPY

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

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

• Resistance: 126.30, 127.00
• Support: 124.70, 124.00, 121.20

Yesterday in the morning, the currency pair was trading quietly under the resistance level of 125.70 approaching weekly lows, but after a series of speeches by Fed officials, macro data and increased demand for protection, the currency pair rushed up almost 80 pips. Increased demand for protection, appeared against the backdrop of another uncertainty in the east of Europe, as well as again China and again COVID. Thus, the Fear-Greed level indicator points to level 42, which is already a Fear level.

The mood was slightly spoiled by fresh statements from China. Chinese authorities have resumed tightening up their anti-coronavirus policies, raising fears of a sharp slowdown in demand. It was reported that amid a large number of asymptomatic cases that were detected only after tests were carried out, a decision was made to expand the lockdown measures in Shanghai.

On the other hand, the prospect of any cessation of hostilities between Russia and Ukraine is more distant than ever, especially after allegations of shelling of a number of settlements on Russian territory, as well as after an unconfirmed missile attack on the Moskva cruiser. This escalation continues to keep commodity prices high. Indeed, the inflationary effects of the Russian-Ukrainian conflict are now more significant than direct military events in the market sense. These effects have created an uncertain environment that could keep investors wary. This effect was reported by representatives of many Central Banks, including the ECB yesterday.

However, the main drivers are hawkish speeches by officials, which led to a serious sell-off in the US stock market, these sell-offs were also supported by gloomy reports during the US reporting season. All this led to a fall in stock indices and sales of treasury bonds, which led to an increase in their yield and investors entering the foreign exchange market. Quite possibly, this was reinforced by profit taking against the backdrop of the upcoming long weekend.

Yesterday, New York Fed President and FOMC member John Williams said in an interview with Bloomberg TV that the Fed should move closer to raising interest rates by 50 basis points in May. Williams said lowering inflation in a tight labor market will be a challenge for the Fed. In addition, he said that the balance sheet cut could be delayed from June if the Fed announces a massive interest rate hike in May.

Also yesterday, Cleveland Fed President Loretta Mester said the Fed is seeking to cut policy measures at the pace necessary to control inflation as well as sustain economic activity.

Against this background, the yield on 10-year US Treasury bonds won back the losses of the last two trading sessions and reached a three-year high at 2.83%.
In terms of macro data, the US released retail sales data for March, which rose 0.5% m/m, below the expected 0.6%. In the labor market, the number of Americans filing new jobless claims rose by 18,000 to 185,000 in the week ended April 9, above market expectations of 171,000. However, claims remain close to the previous week's revised level of 167,000, the lowest since 1968. The seasonally adjusted number of initial claims increased by 28,151 from the previous week to 222,545. The total number of people receiving unemployment benefits fell sharply to 1,475 thousand people, which is much better than the forecast and the previous value. Finally, the country released its core retail sales index for March on a monthly basis, which showed a significant increase compared to the previous month and amounted to 1.1%. The Core Retail Sales Index reflects changes in monthly US retail sales, excluding automobiles. This indicator is an important indicator of consumer spending, as well as the pace of development of the US economy.

In the light of recent publications and speeches, we can expect that the upward movement will continue. However, the bulls on the currency pair may slightly reduce their ardor, firstly, it is already quite openly stated that the level of 130.00 will be critical for the BoJ, upon reaching which the BoJ will act to strengthen the yen. Second, Japan's inflation is expected to rise to around 2% next week, which is the Bank of Japan's inflation target. Many analysts are wondering if the Bank of Japan will change its monetary policy, especially given the differences between the approaches of the Bank of Japan and the Fed to monetary policy. Since if the BoJ continues to take a dovish position, and the tightening of monetary policy by the Fed goes at a faster pace, this will only spur inflation in Japan, and further put pressure on the standard of living in the country. So far, Bank of Japan officials believe that the depreciation of the yen is a positive moment for the economy. Although, on the other hand, more and more voices are heard against the too cheap yen.

For example, today the head of the Ministry of Finance of Japan, Shun'ichi Suzuki, said that a weak yen is bad when there is a serious increase in the cost of raw materials. Despite the fact that Japan imports almost all raw materials. The sharp depreciation of the yen is worrying because of the adverse impact on households due to the loss of purchasing power. In fact, it is also likely to lead to increased pressure from the public. So there are rumors that Prime Minister F. Kishida is likely to announce a big fiscal stimulus package in June ahead of the June 10 upper house elections and emergency measures to help mitigate the impact of rising energy and food prices.

So now it's an interesting prospect, operating on the usual strategy of 'Buy the rumor, sell the fact', as well as guided by the trendy reflationary trading tactics, investors can start buying the yen when it is very cheap. Thus ensuring a confident rollback down. All this will be possible if the idea of ​​a significant increase in inflation in Japan is confirmed next week. So this indicator will be the focus of the markets.

This week there will be no more macroeconomic data that could affect the movement of the currency pair, but do not rule out news from China, and reports of their struggle with Covid-19, as well as the conflict in Eastern Europe.

The classic indicator of the value of a currency is central bank interest rates. This assessment of the strength of the currency, decisively benefited the US dollar. The huge difference in inflation between Japan and the US, and the necessary policy action, could cause the yield curve spread between US Treasuries and JGBs to widen significantly. Plus, don't forget about the Bank of Japan's policy of yield curve control, in which the yield on 10-year Japanese government bonds (JGB) is close to zero, BoJ once again confirmed its commitment to this policy by conducting bond buying operations.

Japan's economy has lagged and slowed significantly for years, and this gap with the US will continue and widen whether both countries or the world as a whole find themselves in an inflation-and-deficit-driven recession this year. The energy price shock currently affecting the global economy will hit Japan harder since almost all of its energy is imported. While the US is itself a net exporter.

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. On the other hand, BoJ officials say that the level of 130 will be critical for the Bank of Japan, after which it will be forced to intervene and begin direct interventions in order to strengthen the national currency.