Since the beginning of this week's trading, the USD/JPY currency pair has faced selling pressures that led it towards the support level of 147.15, the lowest in two months. Obviously, its losses primarily came as the U.S. dollar was negatively impacted by the announcement of lower-than-expected U.S. inflation rates, which adversely affected expectations for the Federal Reserve's tightening policy. Prior to that, the USD/JPY price extended to the resistance level of 151.90, the highest in over a year.
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According to some analysts, as of November 14, the number of short Japanese yen contracts exceeded those seen in early July 2023 and November 2022, and was, in fact, the most extreme since 2017. Therefore, there are many long U.S. dollar contracts, and yen positions are more declining than usual. Some analysts believe that the USD/JPY may not go beyond the range of 145-146.
On another level, interest rates have been the biggest factor moving the US stock market recently. Stocks jumped amid growing hopes that US inflation has calmed enough for the Federal Reserve's next move on interest rates to be lower rather than higher. Generally, this would be a stark turnaround after the Fed quickly cut its key interest rate to its highest level since 2001 from almost zero early last year. Recently, the US central bank is trying to slow the economy and hurt investment prices enough with high interest rates to stifle inflation without exaggerating it and causing a painful recession.
Meanwhile, the recent economic reports indicating a slowdown in both inflation and economic activity that could lead to further inflation have prompted traders to raise their expectations on when the Federal Reserve could start cutting interest rates. Also, they see a 30% chance of that happening in March and a better than 60% chance of it happening by May, according to data from CME Group.
USD/JPY Technical analysis:
The expectations indicate that the losses in the USD/JPY currency pair have pushed some technical indicators towards oversold levels, paving the way for new buying opportunities. Recently, we still see a continued contrast between the Federal Reserve's hawkish policy and the Bank of Japan. On the other side, this would maintain negative interest rates, standing out among global central banks. Therefore, buying could be considered without taking excessive risks from the support levels of 146.70 and 145.80, respectively. On the same time frame, the daily chart for the USD/JPY suggests that the movement towards the psychological resistance level of 150.00 will be crucial for the bulls to regain control of the direction.
.jpeg "USD/JPY (Daily Chart)")