- For three trading sessions in a row, the bulls still control the performance of the USD/JPY currency pair with gains rebounding towards the resistance level of 132.90.
- This happened before settling around the 131.00 level at the time of writing the analysis after statements to the Governor of the US Central Bank calmed down from the pace of recent US dollar gains.
- The announcement of the American job figures which presented a wound for the future tightening of the policy of the American central bank.
Last night US Federal Reserve Chairman Jerome Powell said that if strong employment data continues, the peak rate in the current tightening cycle could be higher, adding that it will take time for inflation to reach the US central bank's target. The yields of two-year treasury bonds have decreased next to the dollar. Accordingly, the American economists at Morgan Stanley said that the interest rate should be raised by a quarter of a point to their expectations. They said Powell "took a more hawkish tone" than last week and "asserted that there is" a significant way forward "before policymakers feel comfortable with inflation returning to the 2 percent target."
Earlier on Tuesday, Minneapolis Federal Reserve Bank President Neil Kashkari said the strong labor market report for January showed the U.S. central bank would need to continue raising interest rates. "I'm still at about 5.4 percent right now," he told CNBC, referring to his expectations for how higher rates should go to rein in inflation. The US Federal Reserve raised its benchmark rate to a range of 4.5 percent to 4.75 percent last week.
One of the key things here is that the main driver of the rally in the stock markets since mid-October has been the fact that bets on the Fed's final interest rate have settled at about 5 percent.
Powell's speech was the first since last Wednesday, after the Federal Reserve Bank's decision to raise US interest rates by a quarter of a point, when the markets dismissed his warning that interest rates were headed up and went up anyway. Powell told David Rubenstein during a question-and-answer session at the Economic Club of Washington: "We think we will need to raise interest rates," and "the labor market is unusually strong."
He added that if the work situation remains very hot, "it may be that we have to make more effort".
Stronger-than-expected US government data on Friday showed that employers added 517,000 new workers in January while the country's unemployment rate fell to 3.4%, the lowest rate since 1969. Powell added that the report "shows you why we believe this is going to be a process will take a long time. of time.”
Stocks and Treasuries sold off after an initial rally as the Federal Reserve chairman opened the door to a higher peak rate in 2023 if the labor market does not begin to ease. His observations indicate that the officials' expectations for the peak interest rate of 5.1% in December, according to their average expectations, is a weak ceiling. Powell seemed willing to follow the data and move higher if necessary.
Expectations of the US dollar against the yen today:
According to the performance on the chart for today's time frame, the price of the currency pair USD/JPY is still at the beginning of the breaking of the general downward trend. The bulls' control over the trend will strengthen if the currency pair moves towards the resistance levels 133.20 and 134.80 respectively. Regions confirm the formation of a channel contrary to the view of the descent before the momentum of the American jobs’ numbers.
The course of the currency pair will depend on the reaction from the policy signals of both the American Federal Reserve Bank and the Japanese Central Bank. On the other hand, the stability of the dollar/yen currency pair around and below the psychological support level of 130.00 will be important for the bears to rule again. I still prefer to buy USD/JPY from every bearish level.
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