USD/JPY Eyeing Deeper Retracement As Dollar Index Rises

By Zain Vawda of DailyFX

Monday, November 14, 2022 7:15 AM EST

USD/JPY Fundamental Backdrop

The US dollar is looking to recover following last week’s rout which saw USD/JPY close the week at a two and a half month low. The pair dipped below the 140.00 level for the first time since September 1. The dollar has since posted gains of around 1.4% against the yen with the greenback boosted by comments from Federal Reserve policymaker Christopher Waller.

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Source: FinancialJuice

Fed policymaker Waller sent markets a timely reminder that the Fed will remain steadfast in its objective of achieving its 2% inflation target. He stressed markets may have overreacted to last week’s US CPI print as it remained a single data point. Despite the somewhat hawkish nature of Wallers comments markets are pricing in a lower rate hike from the Fed in December which could cap gains on the pair in the short-term.

The Bank of Japan (BoJ) Governor Kuroda meanwhile reiterated the need for support in the form of monetary easing as the economy continues its recovery. The Governor stated that the BoJ is monitoring both upside and downside risks which will form the basis of monetary policy moving forward. A policy shift from the BoJ remains elusive at this stage with the central bank looking for solid wage growth before a change in policy will be considered.

A massive week in terms of data for the BoJ as markets wait on machine orders, industrial production, GDP and most importantly national CPI numbers. GDP data will kick off the releases on Tuesday while inflation data is expected on Friday with core inflation YoY forecasted to come in at 3.5%. The expected rise in inflation coupled with the slowdown in GDP for Q3 highlight the need for continued support to the economy as mentioned by Governor Kuroda.

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USD/JPY Daily Chart – November 14, 2022

Source: TradingView

From a technical perspective, the pair saw a decline of 800 pips last week with the weekly candle engulfing five weeks of bullish price action. Given the speed of the decline coupled with a resurgent dollar to start the week the pair could be in for retracement.

The pair has rallied 200 odd pips from last week's low around 138.500 with price currently testing the 100-SMA around the 140.800 handle. A break above the SMA could see a retest of the 142.00 area.

Alternatively, a return of dollar weakness during the US session could result in a retest of last week's lows with a break lower opening up a test of support at the 135.50 handle.