Market Analysis – USDJPY
The US Dollar is trading with a decline against the Japanese Yen in today’s Asian session, consolidating near 108.65. The asset has seen an increased level of volatility once we entered into the European session with the latest hourly candlestick forming a bearish trend and measuring volatility levels equal to the previous two hours together. This week the asset has declined by approximately 0.20% since the market opened after the weekend. The decline has been minimal as both currencies in general have been declining. However, the level of price action has increased this morning.
Yesterday’s fundamentals were largely dominated by comments from members of the US’s Monetary Policy Committee as investors hoped they would respond to a rise in inflation. The annual inflation rate in the US soared to 4.2% in April of 2021 from 2.6% in March and well above market forecasts of 3.6%. It is the highest reading since September of 2008, amid a surge in demand as the economy reopens, soaring commodity prices, supply constraints. High levels of inflation have been proven to damage economic stability and employment.
Nevertheless, the members have advised that altering the monetary policy may have more negative effects than temporary high inflation. With the economy still re-opening and over 8 million people still out of jobs, relative to pre-pandemic levels, Bullard said the Fed should not yet pare back on its quantitative easing program. The Central Regulator uses QE and bond buying programs as a way of increasing the supply of Dollars in the Market. Since the depths of the COVID-19 pandemic, the Fed has been absorbing about $120 billion a month in U.S. Treasuries and agency mortgage-backed securities.
Japanese investors are focused on comments from the Governor of the Bank of Japan, Haruhiko Kuroda. Today, he said that the uneven recovery of the global economy from the recession caused by the coronavirus pandemic could lead to increased savings, economic inequality, and rising debt. In these conditions, the nature of the measures of the world central banks, aimed at supporting economic development, will also change. Urgent emergency measures will be replaced by long-term structural measures. In doing so, regulators will have to take into account many more different conditions than they currently do. Adding to the sentimental strain on the Yen, many countries around the world have warned their citizens regarding traveling to the country for the Olympic games. The US State department on Monday issued its highest Level 4 travel warning for Japan, where a month-long state of emergency has helped reduce cases in Tokyo, but failed to have a significant impact on the country’s fourth wave of Covid-19 infections.
Looking at the currencies individually is vital for traders as it is important to determine not only the price movement of the USDJPY, but also the conditions of both currencies need to be taken into consideration. The US Dollar Currency Index this morning is declining once again for the second consecutive trading day and has traded below yesterday’s price lows. As the USDX has renewed its price lows to a five month low, we can see the price currently trading at 89.58. The figure is far below the psychological price of 90.00. Looking at the Japanese Yen Currency Index, we can again see the index is declining so far today. Even though the Yen is appreciating against the US Dollar, we can see a decline against the rest of the market, hence why we are seeing the index declining. Significant price levels have been confirmed below:
Resistance levels: 109.00, 109.37, 109.84, 110.23.
Support levels: 108.54, 108.20, 107.78, 107.46.