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Chart Of The day: USD/JPY Heading To 130?

By Fawad RazaqzadaForexAug 05, 2022 07:35AM ET
www.investing.com/analysis/chart-of-the-day-usdjpy-heading-to-130-200628120
Chart Of The day: USD/JPY Heading To 130?
By Fawad Razaqzada   |  Aug 05, 2022 07:35AM ET
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  • Falling oil prices and bond yields is good news for yen
  • Dollar weighed down by concerns about US economy, peak inflation
  • Cracks starting to appear in USD/JPY charts

The USD/JPY will be in sharp focus ahead of the US nonfarm payrolls report and inflation data in the week ahead, with investors, also keeping a close eye on falling crude oil prices and bond yields. There is a good chance therefore that we will see further strength for the Japanese yen in days and weeks to come, as some of the influences that had encouraged traders to short the currency are no longer valid or as prevalent.

The USD/JPY has already started to turn lower with rates breaking below a bullish trend line and the 50-day moving average:

USD/JPY Daily
USD/JPY Daily

It has also broken below key support around 134.50 to 135.00, an area which has now turned into resistance. The short-term path of least resistance is therefore to the downside.

From here, it looks like we will see a potential drop to 130.00, and that move could happen as early as later on in the session in the event we see a very weak US jobs report.

The US dollar has actually started to weaken against a number of foreign currencies with even the euro and pound gaining some ground against it. This is because investors have cut back their expectations about further aggressive rate increases from the Federal Reserve due to signs of a weakening economy and peak inflation.

As far as the Japanese yen is concerned, it is fair to say that oil prices have been one of the primary drivers behind its weakness throughout the first half of this year. As oil prices rallied, the yen weakened as investors swapped their low-yielding Japanese currency with those of oil exporters where yields were much higher, including the US and Canada. The Bank of Japan decided not to join other major central banks in fighting inflation. Bucking the trend, it kept its ultra-loose monetary policy unchanged.

But in recent weeks, we have seen quite a sharp turn in most buck-denominated asset prices. The big drop in oil and other commodity prices has increased talks of peak inflation, causing bond yields in these countries to fall faster than that of Japan.

Oil, 10-year Treasuries, and USD/JPY
Oil, 10-year Treasuries, and USD/JPY

Something interesting to note from the above chart is that oil prices peaked first, way back in March, although it then consolidated in a big range, before starting to fall more profoundly around the start of June. We then saw the US 10-year bond yield head lower from around mid-June. But it took the USD/JPY another month before it too started to go lower.

From those summer peaks, WTI and US 10-year yields have fallen around 28% each in percentage terms at their lowest. But the USD/JPY is only around 6% worse off from its corresponding peak. Thus, the USD/JPY has some catching down to do with both crude oil prices and bond yields.

As far as the very short-term is concerned, all eyes will be on the US jobs report for USD/JPY traders on Friday, followed by next week’s publication of US CPI data. Obviously, if jobs, wages, or inflation data disappoint expectations, it is reasonable to expect the USD/JPY to accelerate to the downside.

Disclaimer: The author currently does not own any of the securities mentioned in this article.

Chart Of The day: USD/JPY Heading To 130?
 

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Chart Of The day: USD/JPY Heading To 130?

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Comments (12)
Scott Perry
Scott Perry Aug 05, 2022 12:51PM ET
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Probably should have waited until after the jobs report and then do a re-think based on the result.  But to be fair, right and wrong predictions are what makes a market. I profit from those who trade in the opposite direction of my trade... and are wrong. It seems, more often than not, that those people are the experts that make a living making predictions. I make a living trading the opposite prediction. So please, keep up the great work!
Son Yay
Son Yay Aug 05, 2022 12:51PM ET
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Write any articles or tweets?
Son Yay
Son Yay Aug 05, 2022 12:51PM ET
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Write any articles or tweets?
Shahid Ahmed
Shahid Ahmed Aug 05, 2022 11:27AM ET
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The analyst seems to be working on some ones agenda and must have some common sense of technicals
Nickquick Nickquick
BorgataAa Aug 05, 2022 11:08AM ET
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Wow. Horrible
Chad Richer Than You
Chad Richer Than You Aug 05, 2022 11:01AM ET
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What do Iranians know anyway lol
Fusairu Takumi
Fusairu Takumi Aug 05, 2022 10:57AM ET
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Chart is moving towards 136 no sign of dropping as for now. Bad analysis from this fellow.
Leigh Goodwin
Leigh Goodwin Aug 05, 2022 10:57AM ET
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5m chart looks to be nearing a close below the 50 MA; but, the price on the 15m, 30m & 1H & 4H are way above the 50MA. Maybe he means 130 later.
Sanjay Pradhan
Sanjay Pradhan Aug 05, 2022 10:54AM ET
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136 then may be sellers will kick in
Khaled Najjar
Khaled Najjar Aug 05, 2022 10:53AM ET
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Stupid
Anna Kaliszewska
Anna Kaliszewska Aug 05, 2022 10:25AM ET
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138
Ch Sufyan Jutt
Ch Sufyan Jutt Aug 05, 2022 8:53AM ET
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Wrong Predicrion
Ch Sufyan Jutt
Ch Sufyan Jutt Aug 05, 2022 8:53AM ET
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Wrong Predicrion
 
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