The USD/JPY currency pair continues to be in an uptrend despite tougher signals from the Bank of Japan last week.
The regulator decided to make its yield curve control more flexible amid high uncertainty about price growth. 10-year yield could cross the Bank of Japan's ceiling of 0.5% to 1.0%. Bank of Japan governor Kazuo Ueda says this is not a precursor towards policy normalization. A stable inflation at 2% and wage growth are still ahead.
No further change in BOJ policy is expected this year. The regulator has shown its relative flexibility, which should be positive for the Japanese yen. Previously, investors expected the Bank of Japan to take no action. The rise in the dollar index prevented the yen from strengthening last week. The reason was the downgrade of the US credit rating. However, the end of last week showed that investors took this event quite calmly. Therefore, the Japanese yen is growing again this week.
Friday's data on the labor market in the US was below expectations. In general, it’s positive for metals. It also brings an opportunity for weakening of the US dollar. However, there are no signals for a medium-term weakening of the labor market.
On Thursday, the publication of data on the consumer price index in the US is expected. Last month, the inflation rate was below market expectations. This fact surprised investors and caused them to revise their projections and expect the Fed to ease monetary policy.
If on Thursday data show the price growth is slowing, the market takes the data positively. In this case, the dollar index could start to decline again, while the Japanese yen could strengthen.
According to the technical analysis, the USD/JPY currency pair has reversed from the upper boundary of the uptrend and is approaching the support level. If one draws Fibonacci levels within the corrective movement, the first downside target is seen at 141.25. There is a significant level of 0.5 there, as well as a support level. In case of growth, a stop-loss should be placed above the maximum of the Friday’s candlestick, which corresponds to the level of 143.00.
Decrease in the USDJPY:
Take profit — 141.25
Stop-loss — 143.00
This content is for informational purposes only and is not intended to be investing advice.
