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USD/JPY Plummets Amid Fed’s Dovish Stance: Eyes on US GDP!

The USD/JPY pair has experienced a notable decline, reaching its lowest level since mid-September. This shift comes amid dovish comments from Federal Reserve officials and anticipation of upcoming US GDP data.

Key Points:

  • πŸ“‰ USD/JPY Hits New Low: The pair drops to 147.00, the lowest since mid-September, amid a broader decline in the US Dollar and reduced US yields.
  • πŸ•ŠοΈ Fed’s Dovish Tone Influences Markets: Federal Reserve Governor Christopher Waller’s comments suggest no further rate hikes, impacting the Greenback and Treasury yields.
  • πŸ“Š Japan’s Persistent Inflation & US GDP Data in Focus: Japanese inflation remains above the 2% target for the 19th consecutive month, while traders await the US GDP data for potential market direction.

USD/JPY Daily Chart

USD/JPY in Decline Amid Market Shifts

The USD/JPY currency pair has seen a significant downturn during the early Asian trading hours on Wednesday, falling to the 147.00 mark. This drop marks the pair’s lowest point since mid-September, with the pair trading around 147.07, down 0.28% for the day.

The decline is largely attributed to a combination of a weaker US Dollar and lower US yields. The market’s response follows dovish comments from Federal Reserve officials, particularly Governor Christopher Waller. Waller’s statement on Tuesday indicated confidence in the current policy’s effectiveness in controlling inflation and hinted at the possibility of not increasing rates further. This sentiment has led to a decrease in the US Dollar Index to 102.60 and a drop in the 10-year US Treasury yield to 4.325%, the lowest since September 20.

Economic Indicators and Market Sentiment

The economic landscape is also influenced by various data releases. The US CB Consumer Confidence index improved in November, while the Richmond Fed Manufacturing Index experienced a decline. The S&P/Case-Shiller Home Price Index reported growth, albeit lower than market expectations.

In contrast, Japan’s economic indicators continue to show sustained inflationary pressure, with the headline and core Consumer Price Index (CPI) remaining above the Bank of Japan’s target for the 19th consecutive month. This persisting inflationary trend, coupled with rising speculation about the Bank of Japan possibly shifting its ultra-dovish policy in 2024, has strengthened the Japanese Yen against the Dollar.

Looking Ahead: US GDP Data on the Horizon

The market now turns its attention to the forthcoming US Gross Domestic Product Annualized data for the third quarter (Q3). The anticipated growth rate is expected to expand by 5.0%. This upcoming release is poised to provide clearer direction for the USD/JPY pair, as traders and analysts alike assess the potential impact on currency valuations.

USD/JPY Technical Outlook

From a technical standpoint, the USD/JPY’s downward trend has led the pair to test recent lows just above the 147.00 handle. The pair is currently navigating below the 50-day Simple Moving Average (SMA), indicating potential resistance for immediate upward movements. Despite the current decline, the USD/JPY remains relatively strong in the longer term, trading only slightly below this year’s high of around 152.00.

DAILY CHART ANALYSIS

Technical Indicators:

  • The Ichimoku Cloud shows the price below the cloud, indicating a bearish sentiment.
  • The MACD is below the signal line and decreasing, suggesting bearish momentum.
  • RSI is below 50 and heading towards oversold conditions, which can signal a potential reversal or that the bearish trend is strong.

Current Trend: The daily chart suggests a bearish trend as the price is below the Ichimoku Cloud and other indicators support this.

H4 CHART ANALYSIS

Technical Indicators:

  • Price remains below the Ichimoku Cloud, consistent with the bearish trend indicated on the daily chart.
  • MACD is below the signal line, reinforcing the bearish momentum.
  • RSI is nearing oversold territory, which may suggest a potential pause or reversal in the bearish momentum if it becomes extreme.

USD/JPY H4 Chart

H1 CHART ANALYSIS

Technical Indicators:

  • The price is below the Ichimoku Cloud, with the cloud acting as resistance.
  • The MACD remains below the signal line, indicating bearish momentum is still present.
  • RSI is deep into oversold territory, suggesting a possible imminent retracement or at least a consolidation.

USD/JPY Hourly Chart

FUNDAMENTAL ANALYSIS

  • US Economic Data: Recent dovish comments from Fed officials indicate a possible pivot in the aggressive rate hike policy if inflation continues to ease. The upcoming GDP data will be crucial in determining short-term USD strength. If GDP growth expands as expected by 5.0%, it could provide support to the USD.
  • Japanese Economic Data: Japan’s inflation data exceeding targets and speculation about a policy shift from the BoJ in 2024 could underpin JPY strength.

GEOPOLITICAL EVENTS

  • Geopolitical tensions and global risk sentiment can influence JPY as a safe-haven currency. The current risk-off sentiment is strengthening the JPY against the USD.

TRADE IDEA DETAILS

CURRENCY PAIR: USD/JPY
CURRENT TREND: Bearish
TRADE SIGNAL: Short on retracement

πŸ‘‰ENTRY PRICE: A pullback to the nearest resistance, potentially the bottom of the Ichimoku Cloud or previous support turned resistance around 148.00 on the H1 chart.

βœ…TAKE PROFIT:

  1. Initial Take Profit: 146.00 – Just above the psychological support.
  2. Extended Take Profit: 145.00 – Near previous lows or significant support levels.

❌STOP LOSS:

  • Above the recent swing high or Ichimoku Cloud on the H1 chart, approximately 149.00.

Trading Plan:

  • Entry: Look for bearish price action signals on lower timeframes (H1, M30) as the price retraces to significant technical levels.
  • Risk Management: Do not risk more than 1-2% of trading capital on a single trade.
  • Trade Management: If the initial take profit is hit and the market shows continued bearish momentum, consider trailing the stop to lock in profits and capture further downside movement.

Please note, while the technical analysis suggests a bearish outlook, the release of US GDP data can significantly affect this pair. Therefore, it would be prudent to wait for the data release and reassess the market sentiment post-release before taking any positions.

Conclusion: Market Anticipates GDP Data

As the market digests the dovish sentiments from the Federal Reserve and Japan’s steady inflation, all eyes are now set on the US GDP data. This key economic indicator is expected to shape the short-term trajectory of the USD/JPY pair and potentially influence broader market trends.