7) USDJPY

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

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

• Resistance: 114.30, 114.70, 115.40
• Support: 113.20, 113.00, 112.30

The currency pair appears to have taken a breather after rallying to a three-year high in recent weeks. The strength of the currency pair's rally was driven by the widening difference in yields between US and Japanese government bonds, mainly as a result of diverging policies between the Bank of Japan and the Fed. Another reason for such a sharp drop was described yesterday, China again, COVID again. The demand for risky assets is declining again. The market is still in the Risk-ON phase, the Fear-Greed indicator has dropped to 63.

Yesterday, the US released a series of second and third order data. The US dollar remained weak after the release of durable goods orders, which fell 0.4% in September, compared with a 1.1% forecast. In addition, core durable goods orders were in line with expectations and rose 0.4% during the month. A fairly negative foreign trade in goods was also published, which indicated a deficit of -96.25 billion dollars.

Today, the Bank of Japan left its key short-term interest rate unchanged at -0.1% and kept its target rate for 10-year government bonds at around 0% during its October meeting by 8 votes to 1, as expected. The Bank of Japan will continue to buy the required amount of Japanese government bonds without setting an upper limit to keep the yield on the 10-year JGB at about zero percent.

Many expect the Fed to announce the start of monetary policy normalization at its November meeting. Further we follow today:
- US GDP (Q / Q) (Q3) primary publication
- Number of initial applications for unemployment benefits

The general fundamental background for the currency pair has not changed yet, the upward direction is still basic. The yield on Japan's 10-year government bonds remained close to zero due to the Bank of Japan's policy of controlling the yield curve. We perceive the downward movement as more corrective and we believe that the downward movement will be severely limited. Now, against the backdrop of a potential aggravation of the situation with COVID in China, it is very possible that we will see a downward correction, but no more. While the potential area of ​​fall within the framework of the downward technical correction, if such begins, we can mark it as an area between the levels of 113.00 = 50.0% or 112.54 = 61.8%.

The important thing is that the Fed is very much ahead of the Bank of Japan in terms of normalizing monetary policy. Ultimately, this divergence between central banks could allow US yields to rise faster than their Japanese counterpart, allowing the dollar to rally against the Yen.

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