Generative Data Intelligence

USD/JPY claws back

Date:

After a huge rally last week, the Japanese yen has reversed directions today. USD/JPY is trading at 140.21, up 0.99%. On the economic calendar, Japan releases GDP for the third quarter. There are no economic events in the US today.

A week to remember

The US dollar dropped like a stone last week, courtesy of a soft inflation report that saw both the headline and core readings fall in October. Both readings were lower than expected, and investors pounced on the news, as stock markets soared and the US dollar took a tumble. The yen made the most of the dollar’s misery, as USD/JPY slumped by a massive 5.3% last week and dropped to a 10-week low. The market reaction to the inflation data looks a bit extreme, and this explains the dollar’s comeback today.

The soft inflation report has raised expectations that the Fed will put the brakes on its tightening, after pushing full speed ahead with four straight jumbo hikes of 0.75%. Fed policy makers aren’t bandying around the magical word “peak” to describe inflation just yet, but we are now seeing a change in terminology, such as “gradual” and “measured”. What is interesting is that the markets have gone giddy over a drop in inflation but appear to be ignoring the Fed’s warning that rates could end up higher for longer than expected. I don’t detect any signs of the Fed going dovish, but the markets are expecting a pivot, as there is already talk in the markets of the Fed cutting rates in H2 of 2023.

The dollar is dusting itself off after last week’s disaster, and the yen may have trouble holding onto last week’s impressive gains. The Fed will almost certainly raise rates in December by at least 0.50%, and with the Bank of Japan maintaining a cap on JGB yields, the US/Japan rate differential will continue to widen. That spells trouble for the yen, which has lost about 20% against the dollar this year.

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USD/JPY Technical

  • USD/JPY is testing resistance at 139.91 and 141.61
  • There is support at 137.34 and 135.90

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Kenny Fisher
A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in several major online financial publications including Investing.com, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.

Kenny Fisher

Kenny Fisher

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