The Japanese Yen (JPY) is under pressure as it sees increased selling following an intraday uptick on Monday, hitting a fresh daily low against the US Dollar (USD) as the European session approaches. The uncertainty surrounding the timing and pace of potential rate hikes by the Bank of Japan (BoJ) has prevented the Yen from capitalizing on its modest recovery from its lowest level since early August reached last week.
Key Drivers of Yen Weakness
Market Sentiment: A generally upbeat market mood has diminished the appeal of the safe-haven JPY. Renewed buying interest in the USD has contributed to a rebound of over 50 pips in the USD/JPY pair from near the 149.00 mark, which represented the daily low.
Speculation of Government Intervention: Recent remarks from Japanese officials have fueled speculation about potential government intervention to support the domestic currency. However, these comments have not been sufficient to reverse the Yen’s downward trend.
Geopolitical Tensions: The risk of escalating geopolitical tensions in the Middle East may deter traders from making aggressive bearish bets on the JPY, especially in the absence of significant economic data on Monday.
Upcoming Events: Investors are likely to adopt a cautious stance ahead of critical upcoming events, including Japan’s general election on October 27, the BoJ meeting on October 31, and the US Presidential election on November 5.
Official Comments and Economic Outlook
Japan’s top currency diplomat, Atsushi Mimura, recently cautioned against speculative trading and highlighted the government’s keen observation of foreign exchange movements. Similarly, Deputy Chief Cabinet Secretary Kazuhiko Aoki emphasized the importance of stable currency movements reflecting economic fundamentals. Meanwhile, BoJ Governor Kazuo Ueda noted that while the Japanese economy is recovering moderately, the central bank remains focused on the economic impacts of market instability and overseas risks, indicating no immediate plans for further interest rate hikes.
Economic Developments
Positive sentiment in global equity markets was bolstered by the People’s Bank of China‘s (PBoC) launch of two funding schemes aimed at enhancing capital market development. Conversely, rising tensions in the Middle East, exemplified by airstrikes from the Israeli army, pose a potential threat to market stability.
Technical Outlook: USD/JPY Poised for Potential Gains
From a technical analysis perspective, the daily chart oscillators indicate a positive trend, suggesting caution against aggressive bearish positions. Should the USD/JPY pair weaken below the 149.00 mark and the 148.85 horizontal support, it could slide further towards the 148.20 region, followed closely by the 148.00 round figure. If this support fails, it may extend the decline towards the 147.35-147.30 area, potentially targeting sub-147.00 levels.
Conversely, immediate resistance is seen in the 149.70-149.75 region, followed by the psychological 150.00 mark and the monthly peak of 150.30. A sustained move above these levels could lead to further bullish momentum, aiming for the August swing high around the 150.85-150.90 zone. A continuation of buying pressure could then see the USD/JPY pair reclaim the 152.00 level, with the next significant hurdle around the 152.70-152.75 area.
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