The analysis of USD/JPY

The Japanese yen gained on Wednesday and Thursday against the US Dollar on the comments from the Federal Reserve Chairman Jerome Powell. He said about pausing the path of lifting interest rates after the widely expected rate hike in December. As a result, USD/JPY slipped below 113.5. However, the overall picture for the pair remains positive, as the uptrend which has lasted since March 2018 continues.

One of the reasons for it lies in fears of the Bank of Japan. The BOJ governor warned that the bank was not going to change its ultra-loose monetary policy any time soon amid the growing risks to the global economy resulting from the US-China trade war. This matter can reduce the interest to the Japanese currency.

Analysts also remember the influence of the market sentiment on the USD/JPY, as both of the currencies are considered safe-havens during the time of uncertainties. The recent panic in the equity market showed the USD as a more attractive safe-haven currency for investors. The reason for it lies, again, in the world trade uncertainties, political tensions in Europe and slowing down of the Chinese economy.

That is why the direction of the JPY heavily depends on the macro situation and further steps by the central banks of the countries.

Major Banks see the Japanese yen to continue strengthening. They expect USD/JPY trading solidly below 100 by 2020, reaching the levels of 2013. Others take into account the Fed’s recent dovish tone and push the pair even reaching the 96 level by the end of 2020.

However, let’s look at the middle-term picture for USD/JPY.

On the weekly chart, parabolic SAR shows that the uptrend resumes. The pair is trading above the 200-week MA during the current week. The strong USD can push USD/JPY towards the resistance at 14.730 and, therefore, increase the chances of the reversal. If the Federal Reserve sticks to its dovish tone in the upcoming months, it will make the USD weaker and pull it down to the support at 111.4 (50-months MA). If bears manage to break this level, the next support for USD/JPY is situated at 109.760.

Conclusion

The recent dovish comments of the Federal Reserve are important for predicting the price of the JPY. However, it is also important to take into account political uncertainties such as Brexit and Italian debt problem, world trade tensions and the possible end of the quantitative easing policy by the Bank of Japan.

Ekaterina Gorbatenko