USD/JPY Initiates Bearish Series Even As Bearish Momentum Abates

USD/JPY slips to a fresh monthly-low (110.22) amid the ongoing U.S. government shutdown, and recent price action keeps the downside targets on the radar ahead of the U.S. Non-Farm Payrolls (NFP) report as the exchange rate initiates a fresh series of lower highs & lows.

Image of daily change for major currencies

USD/JPY INITIATES BEARISH SERIES EVEN AS BEARISH MOMENTUM ABATES

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The recent rebound in USD/JPY quickly unravels despite the recovery in global equity prices, and the dollar-yen exchange rate may continue to track the weakness in U.S. Treasury yields as the uncertainty surrounding fiscal policy clouds the economic outlook.

Image of fed fund futures

The gridlock in Congress may continue to produce headwinds for the greenback as it puts pressure on the Federal Reserve to alter the monetary policy outlook, and the central bank may largely endorse a wait-and-see approach at its next interest rate decision on January 30 as officials ‘see growth moderating ahead.’ In turn, Fed Fund Futures may continue to show the benchmark interest rate on hold throughout the first half of 2019, but fresh developments coming out of the U.S. economy may keep the Federal Open Market Committee (FOMC) on track to further normalize monetary policy as the NFP report is anticipated to show a 180K expansion in December.

With that said, Chairman Jerome Powell & Co. may continue to prepare U.S. households and businesses for a less-accommodative stance as it ‘is more likely that the economy will grow in a way that will call for two interest rate increases over the course of next year,’ and the hawkish forward-guidance for monetary policy instills a long-term bullish outlook for the USD/JPY especially as the Bank of Japan (BoJ) continues to pursue the Quantitative/Qualitative Easing (QQE) Program with Yield-Curve Control.

However, the current environment may keep USD/JPY under pressure as it fails to preserve the opening range for December, with the downside targets still on the radar as the pickup in volatility fuels the recent shift in retail interest.

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