The Japanese Yen (JPY) dipped during the Asian session on Friday, pausing its recent modest recovery against the US dollar after hitting its lowest point since early August. Investors have reduced expectations for additional interest rate hikes by the Bank of Japan (BoJ) in 2024, following comments from Japanese Prime Minister Shigeru Ishiba, who stated that the country is not positioned for further increases. This shift, combined with a generally positive risk environment, has undermined the safe-haven Yen ahead of Japan’s snap election on October 27, lending support to the USD/JPY pair.
Meanwhile, the US Dollar (USD) is trading within a range below a nearly two-month high reached on Thursday, offering little momentum for the USD/JPY pair. Market sentiment has shifted as signs of labor market weakness suggest that the Federal Reserve may continue to cut interest rates. However, stronger-than-expected US consumer inflation data released on Thursday diminishes the likelihood of significant rate cuts in November, tempering aggressive USD trading ahead of the upcoming Producer Price Index (PPI) report.
Market Dynamics: The Japanese Yen has failed to capitalize on its recent recovery from a two-month low against the US Dollar, amid diminishing prospects for BoJ rate hikes. Political uncertainty related to the October 27 election, coupled with a positive risk tone, is likely to continue undermining demand for the JPY and support the USD/JPY pair.
The US Dollar surged to its highest level since mid-August following the Labor Department’s report indicating a 3.3% year-over-year increase in the core Consumer Price Index, which excludes food and energy. The headline CPI rose by 2.4% year-over-year, slightly below expectations but representing the smallest increase since February 2021. Additionally, initial unemployment claims rose by 33,000 to a seasonally adjusted 258,000, signaling potential weakness in the US labor market.
Technical Outlook: From a technical standpoint, last week’s move above the 50-day Simple Moving Average (SMA) for the first time since mid-July, alongside acceptance above the 38.2% Fibonacci retracement level of the July-September decline, favors bullish sentiment. Daily chart oscillators are gaining traction without entering overbought territory, suggesting an upward trajectory for the USD/JPY pair. Any subsequent decline is expected to attract buyers, particularly near the 148.00 level, which serves as a critical support point.
If this level is breached, it may trigger technical selling, potentially driving the pair to intermediate support at 147.35, then 147.00 and 146.50. Conversely, the 149.00 mark presents an immediate resistance point, with further hurdles around 149.55-149.60. If surpassed, bulls could target the psychological 150.00 level, with momentum extending toward the 50% Fibonacci retracement level around 150.75-150.80.
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