USD/JPY Forecast: Hits 3-Month Lows Amid Dovish Fedspeak

• Powell said interest rate increases could be cut back “as soon as December.”
• US yields dropped overnight to a nearly two-month low of 3.6% after Powell.
• There is a 91% probability that the Fed will reduce its rate increase to 50bps in December.

Today’s USD/JPY forecast is bearish. The dollar hovered near a three-month low against the yen on Thursday as traders focused on remarks made by Federal Reserve Chair Jerome Powell that interest rate increases could be cut back “as soon as December.”

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The dollar-yen pair is quite responsive to fluctuations in long-term US yields, which dropped overnight to a nearly two-month low of 3.6%. Powell stated at the Brookings Institution in Washington that “slowing down at this time is a good way to balance the risks.” But he continued by saying that “keeping policy at a restrictive level for some time” would be necessary to contain inflation.

Markets are currently placing a 91% probability that the Fed will reduce its rate increase to 50 basis points on December 14 and just 9% odds of an additional 75 basis point increase. November was the worst month for USD/JPY in 14 years, as the dollar dropped 7.15% against the yen.

Asahi Noguchi, a BOJ board member, stated on Thursday that the central bank must maintain extremely low interest rates because the nation has yet to sustainably hit the bank’s 2% inflation target.

USD/JPY key events today

Investors will pay attention to data from the US, including the core PCE price index, the initial jobless claims, and the ISM manufacturing PMI. They will also attend a speech from Bank of Japan Governor Kuroda.

USD/JPY technical forecast: Bears finally break 138.00

Looking at the 4-hour chart, we see the price trading below the 30-SMA and the RSI below 50, showing bears are in control. The price had been trading in a sideways move with support at 138.03. Bears tried to break below this support on several occasions but failed.

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When the price finally fell below this level, it was with a lot of momentum. The bears will now be looking to break below support at 136.05. Bulls will also be waiting for a retracement of the recent move. If bulls came in at any point, it would be to retest the 138.03.

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