Japanese Yen hangs near daily low against USD; USD/JPY flirts with 100-day SMA support breakpoint

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• The Japanese Yen is seen extending its steady intraday descent against the USD through the early European session.
• An uptick in the US bond yields revives the USD demand and helps USD/JPY to rebound from a multi-month low.
• A softer risk tone and rising Fed rate cut bets should cap any meaningful upside ahead of this week’s key macro data.

The Japanese Yen (JPY) witnessed an intraday turnaround against its American counterpart and assisted the USD/JPY pair to rebound from the 146.20 area, or a near three-month low touched earlier this Monday. Bank of Japan (BoJ) policymaker last week stressed the need to maintain the ultra-loose monetary policy settings and downplayed speculations about an exit from negative interest rates. This, along with a goodish pickup in the US Dollar (USD) demand, bolstered by a modest rebound in the US Treasury bond yields, lifts spot prices back above the 147.00 mark during the first half of the European session.

The USD/JPY pair has now moved back closer to the 100-day Simple Moving Average (SMA) support breakpoint, though any further appreciating move still seems elusive. Escalating geopolitical tensions in the Middle East takes its toll on the global risk sentiment. Apart from this, fears of another COVID-19-like respiratory illness outbreak, the worsening economic outlook in China and the darkening global outlook might continue to benefit the JPY’s relative safe-haven status. Furthermore, bets that the Federal Reserve (Fed) is done raising rates and may start easing its policy by the first half of 2024 should cap the USD. 

Traders might also refrain from placing aggressive directional bets and prefer to wait for this week’s important macro releases, starting with the Tokyo core CPI on Tuesday. The focus, meanwhile, will remain glued to the closely-watched US monthly jobs data, popularly known as the Nonfarm Payrolls (NFP) report on Friday. In the meantime, traders on Monday will take cues from the US Factory Orders data, due later during the early North American session. This, along with the USD price dynamics and the broader risk sentiment, might contribute to producing short-term trading opportunities around the USD/JPY pair. 

Daily Digest Market Movers: Japanese Yen loses traction after hitting a near three-month high against USD

• A US destroyer and three commercial ships operating in the Red Sea came under drone and ballistic-missile attacks on Sunday.
• Responsibility for the latest incursion was claimed by Iran-backed Houthi rebels in Yemen.
• This comes after Israel’s warplanes pounded Gaza on Friday and talks to extend a week-old truce with Hamas collapsed, and marks a major increase in maritime aggression linked to the prolonged war.
• China’s hospitals have been flooded with cases of respiratory illnesses and sick children complaining of pneumonia-like symptoms, leading to increased scrutiny from the World Health Organisation (WHO).
• The Chinese health ministry said on Saturday that the respiratory illness is caused by known pathogens and there is no sign of new infectious diseases and recommended reducing large gatherings in public places.
• BoJ board member Noguchi spoke over the weekend to convey that there is no imminent policy pivot in sight as the rise in inflation is mostly due to cost-push factors amid higher import prices.
• Noguchi added that although annual spring wage negotiations this year achieved hikes unseen in 30 years, they have  just reached a stage where the possibility of achieving the 2% inflation target has come into sight.
• Federal Reserve Chairman Jerome Powell said on last Friday it would be premature to conclude with confidence that they have achieved a sufficiently restrictive stance or to speculate on when policy might ease.
• Investors, however, seem convinced with the idea that the Fed is done with the string of rate hikes and will soon move to an easing posture in 2024, which leads to a further decline in the US bond yields.
• The yield on the benchmark 10-year US government bond rebounds from a 12-week low and helps revive the US Dollar demand,  assisting the USD/JPY pair to rebound around 90 pips from a multi-week low.
• Traders now look to the US Factory Orders data for some impetus ahead of the Tokyo CPI on Tuesday and this week’s other important US macro data scheduled at the beginning of a new month, including the NFP report on Friday.

Technical Analysis: USD/JPY stalls the intraday recovery move ahead of the 100-day SMA support breakpoint 

From a technical perspective, the recent failure ahead of the 152.00 mark constituted the formation of a bearish double-top pattern on the daily chart. A subsequent break and close below the 100-day Simple Moving Average (SMA) on Friday further validates the near-term negative outlook for the USD/JPY pair. Spot prices, however, find some support near the 146.20 area, which represents the 38.2% Fibonacci retracement level of the July-October rally and should act as a key pivotal point. Given that oscillators on the daily chart are holding deep in the negative territory, some follow-through selling should drag the pair further towards the 145.45-145.40 intermediate support en route to the 145.00 psychological mark and the 50% Fibo. level, around mid-144.00s.

On the flip side, any subsequent move up is likely to confront stiff resistance and remain capped near the 100-day SMA support breakpoint, currently pegged near the 147.30-147.35 region. A sustained strength beyond, however, could trigger a short-covering rally and allow the USD/JPY pair to accelerate the momentum towards reclaiming the 148.00 round figure. The upward traejctory could get extended further towards the 148.25-148.30 region.