JAPANESE YEN BACKDROP
The Japanese Yen had seen its recent rally curtailed toward the end of last week, something which has continued into the new week. The Yen faced renewed selling pressure this morning as market sentiment appears to have improved. Heading into the US session we can see from the currency strength chart below that the US Dollar and the Yen remain the weakest currencies.
The safe have appeal of the Japanese Yen has supported the currency of late following a selloff which saw EURJPY hit a 15-year high. The hawkish rhetoric by the ECB at last weeks meeting threatens to keep EURJPY advancing beyond the 150.00 mark over the medium term. Given the lack of policy intervention expected by the Bank of Japan (BoJ) in the short term, any hope of staving of further losses rests with overall sentiment and the potential for a global recession in 2023. Persistent recessionary fears would likely dent market sentiment and keep safe haven Yen buyers interested.
Looking at USDJPY and the fundamental picture appears slightly less certain as the Fed looks to pause rate hikes. This has stoked recessionary fears and seen market participants increase their expectations for rate cuts in the second half of 2023. Friday’s jobs data however will give the Fed a brief moment of happiness as despite signs of a slowdown in the US economy the unemployment rate remains at record lows. This should give the Fed optimism and back up the comments made by Fed Chair Powell that he sees modest growth rather than a recession for the US in 2023. The fundamental outlook is murkier than that of the Euro Area at this stage and could be the reason for the indecision in USDJPY.
RISK EVENTS IN THE WEEK AHEAD
There is a host of risk events for the week ahead particularly out of the US and Japan which could further impact overall sentiment as well as Yen pairs. US CPI remains the biggest event of the week from the US while the coincident index promises to be of interest out of Japan and give an insight into the current economic performance.
There is a host of Federal Reserve policymakers scheduled to speak this week which kicks off tomorrow with Fed Member Jefferson and Williams. This could shed further light on US monetary policy and what policymakers expect for the rest of 2023.
They Key Risk Events to Keep an Eye on:
PRICE ACTION AND POTENTIAL SETUPS
EUR/JPY Daily Chart
EURJPY has seen a sharp pullback since printing a 15 year high around the 151.60 mark. The selloff was exacerbated by the safe haven demand we have seen over the last week as the pair fell around 440 pips back toward the ascending trendline.
EURJPY has completed its third touch of the trendline and closed as a bullish inside bar candle on Friday, hinting at further upside. Immediate resistance rests around the 150.00 mark with a break higher obviously bring the most recent highs into play. Given the extended rally to the upside there is a chance we could be in for some consolidation on EURJPY before its next move. EURJPY remains bullish above the 146.60 handle with a daily candle close below invalidating the bullish narrative.
USD/JPY Daily Chart
Source: TradingView, prepared by Zain Vawda
From a technical perspective, the daily chart for USD/JPY looks eerily similar to EUR/JPY. This is a theme across Yen pairs given last weeks rally in the Yen was more driven by safe haven demand than technical factors.
Having broken the ascending channel, we have since broken back inside and tapped the lower end of the ascending channel as well as the 50-day MA. Similar to EURJPY the overall structure for USDJPY remains bullish at this stage with a push toward resistance around the 135.70 and beyond a possibility. Any push higher here will find strong resistance with the 138.00 handle so far proving a bridge to far for USDJPY.
Alternatively, a push lower from here will bring the 50-day MA and 100-day MA into play, resting at the 133.86 and 132.86 levels respectively. A break and daily candle close below the 133.60 handle will invalidate the bullish bias.
AUD/JPY Daily Chart
Source: TradingView, prepared by Zain Vawda
The AUD/JPY chart sees price staircasing its way higher following last week’s pullback. The Aussie Dollar has benefitted from the resumption of rate hikes by the Reserve Bank of Australia (RBA) which was accompanied by hawkish rhetoric as well.
AUDJPY has been making higher highs and lows since bottoming out on March 24. The 92.00 level remains a tough hurdle to clear and has served as resistance since February 22. Based on structure we should be on course for a new high yet the RSI on the daily timeframe is in overbought territory and maybe worth keeping an eye on.
Similar to EURJPY the medium-term fundamentals support further upside for AUDJPY and longs on any pullbacks may potentially provide an excellent opportunity. AUDJPY remains bullish above the 89.76 level with a daily candle close below invalidating the bullish structure.