Dollar/yen fell sharply, reaching the lowest since September at one stage, as stock markets crashed. Good news for the US economy turned into bad news for the pair. The upcoming week will test this new reaction function with the all-important inflation report.
USD/JPY fundamental movers
Stocks crash – that determined (almost) everything
The US stock market crashed on Monday, there is no better word to describe it. Another downfall was seen on Thursday and volatility continued throughout the week. The pair rose and fell with stocks as the yen is a safe-haven currency.
The initial trigger for the fall was the excellent NFP report and it was followed by a great report for the services sector. The good news for the US economy implies higher inflation, higher interest rates, and thus causing a revaluation of stocks.
However, bond yields were mixed: an increase in yields supported the greenback while a drop meant added to the downfall. Fed officials did not seem too worried about stocks, but President Trump certainly complained about them.
The reports about the reappointment of Haruhiko Kuroda as the Governor of the BOJ somewhat weighed on the yen, as he has been extremely dovish.
Inflation and also the consumer
The big event of the week is undoubtedly the US CPI report on Wednesday, overshadowing the retail sales publication at the same time. Inflation has been the missing piece: with robust growth, higher employment and most recently higher wages, inflation should, in theory, finally rise. Core CPI is expected to remain at 1.8% y/y and any deviation could trigger significant moves. Higher inflation implies faster rate hikes and another stock market crash, thus sending the pair lower. A slide could send the pair higher alongside equities.
See all the main events in the Forex Weekly Outlook
Key news updates for USD/JPYUpdates:
- Feb 18, 10:27: EUR/USD: Where To Buy Dips; USD/JPY: Where To Sell Bounces? – TD: The US dollar is experiencing volatility which is quite unusual. Its major peers are moving up and down against it....
- Feb 17, 17:27: Volatility is back with a vengeance and the perky pound – MM #173: Markets are rocking and rolling with high volatility coming back. We analyze what’s going on before moving to the pound...
- Feb 17, 17:20: EUR/USD, USD/JPY: ‘Conservative’ Targets At 1.30 & 100 As USD Regime Change Underway – ING: Both the euro and the yen had roller-coaster weeks against the US dollar amid rising market volatility. What’s next? Here...
- Feb 16, 9:20: USD/JPY: To 100 or back to 110? Two opinions: USD/JPY fell to a 15-month low and is already trading at the 105 handle. The yen did not suffer from...
- Feb 14, 14:18: Is the US economy overheating? – Live coverage of the Inflation Report: The US releases its all-important and highly-anticipated inflation report. The first publication for 2018 has risen in importance after the...
- Feb 14, 8:42: USD/JPY: After falling to a 15-month low, what’s next?: Dollar/yen fell to a new low below 107, hitting a low of 106.84 before bouncing. This is the lowest level since...
- Feb 12, 8:37: Tech Targets: EUR/USD, GBP/USD, AUD/USD, NZD/USD, USD/JPY – UOB: After a turbulent week in stock and currency markets, what levels should we look out for in the new week?...
USD/JPY Technical Analysis
114.50 remains the top line of the range despite a quick breach in the autumn. It is followed by the high of 113.75.
112.90 served as support in December and is a pivotal line in the range. 112.20 used to be important in the past.
It is closely followed by 111.70, which provided support back in October. The round level of 111 worked as a cushion to the pair in November.
Looking down, 110.70 was a separator of ranges in June and remains important. The round number of 110 serves as a psychological level.
109 was a pivotal line within the range. 108.30 was the low seen in late January. Even lower, we find 107.10 as the ultimate level.
If the pair falls even lower, the round number of 105 will come into play, followed by 103.30.
USD/JPY Daily Chart
I am bearish on USD/JPY
We could see yet another positive week for US data, sending the dollar higher against most currencies, but not against the yen.
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