7) USDJPY

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

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

• Resistance: 114.40, 114.70, 115.40
• Support: 112.30, 112.00, 110.80

Yesterday the currency pair was very active having shot up 120 pips. The reason for this is the release of data on inflation in the United States, as well as a sharp demand for protection. Moreover, the demand for the safe yen was lower than the US dollar, even though the Japanese stock market was also collapsing. The effect of the difference in market volumes worked here. Greed in the market by the end of yesterday has slightly decreased, here is the publication of a high inflation rate in the United States, as well as problems in China. The value of the Fear-Greed indicator is now 82.

The Japanese stock market continues to experience strong pressure, which is based on fears around the Chinese real estate market. The gloomy mood was exacerbated by the news that the Chinese giant Evergrande is on the verge of default. Some bondholders did not receive coupon payments by the end of the 30-day grace period for coupon payments of more than $ 148 million on their bonds in April 2022, 2023 and 2024 at the time of the Asian business closure, and market negotiations hint that the DMSA prepares bankruptcy proceedings against the Evergrande Group.

However, it was revealed today that China Evergrande Group averted a destabilizing default at the last minute for the third time in the past month, with a source reporting that several bondholders received overdue coupon payments. Failure to pay could lead to a formal default by the company and cross-default on other Evergrande dollar-denominated bonds, exacerbating the debt crisis looming in the world's second largest economy.

It was also reported today that Chinese regulators have said they are considering supporting developers in order to avoid the collapse of the industry. Also, do not lose sight of the appropriate timing of debt repayment of another Chinese giant Kaisa Group.
By and large, information about the intention of the Chinese government to support developers in order to prevent default slightly reduces risks. The People's Bank of China continues to operate on the open market and injects record amounts of funds into the system through reverse repo transactions in order to stabilize the situation. While we are watching the news from China.

However, all this faded into the background after the publication of macro data from the United States. Interest in the US dollar accelerated after the release of much stronger than expected data on consumer inflation in the US. In fact, the general CPI rose 0.9% mom in October, the largest increase in four months, and the annualized rate accelerated to 6.2%, or the highest level since 1990.

In addition, the annual core consumer price index (excluding volatile food and energy prices) rose to 4.6%, the highest level since August 1991. The data further reinforced rumors that continued inflationary pressures could force the Fed to raise interest rates earlier than expected. The market lays in the expectation that the first increase in interest rates may occur as early as July 2022, immediately after the completion of the QE program. This, in turn, pushed the yield on benchmark US 10-year government bonds back to 1.57%, reflecting investor expectations, and remained favorable to strong demand around the US dollar.

Also yesterday, the labor market published slightly negative data on the total number of people receiving unemployment benefits, which exceeded the forecast and amounted to 2,160 thousand people, as well as the number of initial applications for unemployment benefits was higher than forecast, but better than last week. and amounted to 267 thousand people.

Yesterday, Japan's macroeconomic calendar was blank, important news was not released.
Tomorrow we follow the publications from the US labor market, namely the number of open vacancies at JOLTS in September.

The general fundamental background for the currency pair has not changed yet, and only strengthened the upward potential for the currency pair. Now the difference in approaches to monetary policy between the Fed and the BoJ is an abyss, the Fed is already on its way to normalization and the 'light at the end of the tunnel' is visible, and BoJ is still ready to use all available tools to launch the economy and accelerate inflation. Also, do not forget about the yield on 10-year government bonds of Japan, which is close to zero due to the policy of the Bank of Japan to control the yield curve. 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.

However, now, against the backdrop of a potential exacerbation of the COVID situation in China, it is still possible that we will see a downward correction, but no more.

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