USDJPY declines on expectations of U.S. and Japan's monetary policy changes

28 December 2023 130
USDJPY declines on expectations of U.S. and Japan's monetary policy changes

The USDJPY currency pair started Thursday's trading session with a decline. The dollar exchange rate is experiencing significant losses amid forecasts of interest rate cuts by the U.S. Federal Reserve (Fed) next year. As a result, the U.S. currency may show its first annual decline after a few years of rally.


The dollar index, measured against six major currencies, has already fallen to a 5-month low of 100.45.


As of today, investors remain focused on the timing of the Fed's monetary policy easing. According to CME FedWatch, the likelihood of a rate cut in March is 89%. It could be reduced by 150 basis points over 2024, Reuters said.


However, some analysts are still not convinced that the U.S. central bank will act in such an aggressive manner. Thus, Monex USA experts believe that there is a rather high risk of the dollar rally in the market.


Meanwhile, Bank of Japan Governor Kazuo Ueda is initiating a process that could lead to the country's first interest rate hike since 2007. Japan's regulator may decide to tighten monetary policy as early as spring, although it does not rule out the possibility of a rate hike in January, the Bank’s Governor said.


In an interview with NHK, Ueda said the BOJ could make a decision even without full wage data from small and medium-sized businesses. These events supported the yen's value.


The BOJ maintains the last negative interest rate in the world in an effort to induce a positive inflation cycle through wage increases.


USDJPY quotes are forming a new downtrend on the D1 timeframe.


In terms of wave analysis, the price is forming the third descending wave on the H1 timeframe. Breaking through the top of the first wave at 140.95 will strengthen the downward movement.


Signal:

The short-term outlook for USDJPY suggests selling

The target is at the level of 136.65.

Part of the profit should be taken near the level of 139.40.

A stop-loss could be placed at the level of 143.40.


The bearish trend is short-term, so trade volume should not exceed 2% of your balance.

This content is for informational purposes only and is not intended to be investing advice.

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