CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

USD/JPY: Inflation surprise fuels yen surge, 200DMA break boosts downside risks

Article By: ,  Market Analyst
  • Tokyo inflation tops forecasts, firming BoJ rate hike bets
  • USD/JPY breaks 200DMA, extending Monday’s bearish break
  • 150, 147.20 downside levels to watch

Overview

An upside inflation surprise, signs of US Treasury yields peaking, thin markets and month-end flows have USD/JPY moving, sending it careening through the important 200-day moving average in Asian trade on Friday. A venture below 150 looks increasingly likely given the price action seen this week.

Tokyo inflation tops, JPY pops

The catalyst to spark the latest unwind was Tokyo’s inflation report for November. Headline inflation rose 2.6% over the year, fourth tenths above expectations. More importantly, prices ex-fresh food gained 2.2%, up from 1.8% in October and two tenths more than forecast. The Bank of Japan (BoJ) targets a 2% level for this measure as part of its monetary policy deliberations.

Excluding fresh food and energy prices, the core-core rate printed at 1.9%, up from 1.8% a month earlier, while services inflation increased 0.9%, up from 0.8% previously. While this is the Tokyo reading, not national survey released in three weeks time, the detail will build confidence among Japanese policymakers that inflationary pressures are stirring.  

December BOJ hike firms

Source: Bloomberg

With markets split on whether the BoJ would lift interest rates in either next month or February, the upside surprises have seen expectations firm marginally towards a 25-pointer being delivered on December 19. According to swaps pricing, the probability of such an outcome is priced just over 60%, with a full 25-point move fully priced by the bank’s meeting in March.

Along with signs that US 10-year Treasury yields may have peaked near-term, an important development considering how closely correlated USD/JPY has been with them over periods this year, it’s combined with holiday market conditions to deliver a meaningful rally in the yen.

USD/JPY: sub-150 incoming?

Source: TradingView

With USD/JPY breaking through uptrend support earlier in the week, the price signal has confirmed the bearish momentum picture with MACD and RSI (14) also trending lower. It screens as an sell-on-rallies play right now.

Having sliced through the 200-day moving average, a level often respected in the past, it has generated fresh setups for traders to consider.

If we were to see the price push back towards the 200DMA, shorts could be established beneath with a protective stop above either it or 150.90, another long-running level that has offered support and resistance in the past. The price has so far bottomed at 150, suggesting round numbers have relevance for those considering the setup. Having destroyed so many levels in the rout of July and August, there isn’t a lot of support evident until 147.20. That’s a target to put on the radar.

If the price were to reverse back above the 200DMA/150.90 zone, the bearish bias would be invalidated.

-- Written by David Scutt

Follow David on Twitter @scutty

 

StoneX Europe Ltd may make third party material available on this website which may contain information included but not limited to the conditions of financial markets. The material is for information purposes only and does not contain, and should not be construed as containing, investment advice and/or investment recommendation and/or an investment research and/or an offer of or solicitation for any transactions in financial instruments; any decision to enter into a specific transaction shall be made by the client following an assessment by him/her of their situation.

StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Please ensure you fully understand the risks involved by reading our full risk warning.

FOREX.com is a trading name of StoneX Europe Limited, and FOREX.com/ie is a domain operated by StoneX Europe Ltd, a member of StoneX Group Inc. StoneX Europe Ltd, is a Cyprus Investment Firm (CIF) company registered to the Department of Registrar of Companies and Official Receiver with a Registration Number HE409708, and authorized and regulated by the Cyprus Securities & Exchange Commission (CySEC) under license number 400/21. StoneX Europe is a Member of the Investor Compensation Fund (ICF) and has its registered address at Nikokreontos 2, 5th Floor, 1066 Nicosia, Cyprus.

StoneX Europe Limited is registered with the German Federal Financial Supervisory Authority (BaFin). BaFin registration ID: 10160255

FOREX.com is a trademark of StoneX Europe Ltd, a member of StoneX Group Inc.

The statistical data and the awards received refer to the Global FOREX.com brand.

This website uses cookies to provide you with the very best experience and to know you better. By visiting our website with your browser set to allow cookies, you consent to our use of cookies as described in our Privacy Policy.

Through passporting, StoneX Europe is allowed to provide its services and products on a cross-border basis to the following European Economic Area ("EEA") states: Austria, Bulgaria, Croatia, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden.

Additionally, StoneX Europe Ltd is allowed to provide Investment and Ancillary Services to the following non-EU jurisdiction: Switzerland.

StoneX Europe Ltd products, services and information are not intended for residents other than the ones stated above.

Tied Agent Information: KQ Markets Europe Ltd with Company No. HE427857.
Address: Athalassas 62, Mezzanine, Strovolos, Nicosia Cyprus.
Services Provided: Reception and Transmission of Orders.
Commencement Date: 06/12/2022
Website: KQ Markets - CFD Trading | KQ Markets

We may pay inducements, such as commissions or fees, to affiliates or third-party introducers for referring clients to us. This is in line with regulatory guidelines and fully disclosed where applicable.

StoneX Europe Ltd may make third party material available on this website which may contain information included but not limited to the conditions of financial markets. The material is for information purposes only and does not contain, and should not be construed as containing, investment advice and/or investment recommendation and/or an investment research and/or an offer of or solicitation for any transactions in financial instruments; any decision to enter into a specific transaction shall be made by the client following an assessment by him/her of their situation. StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.

© FOREX.COM 2024