Daily Market Recap - USDJPY

The USDJPY pair has once again failed to penetrate the area close to 109.70, as Friday‘s data dump of economic figures released by Japan sent mixed signals to the market. The previous day’s gains were mostly attributed to thinly traded volumes and optimism over the potential signing of a trade deal between the US and China, yet to be concluded.

Japan released several important figures on Friday including its unemployment rate, as well as industrial production and Consumer Price Index (CPI). The unemployment rate decreased from its previous reading, coming in at 2.2 percent. CPI figures were all positive, with the headline CPI excluding fresh foods standing at 0.8 percent versus expectations of 0.6. These positive readings tend to boost the national currency. However, it would seem markets focused on the significant surprise in the industrial production year over year figure, where the consensus stood at an increase of 0.9 percent compared with an actual preliminary drop of -8.1. A stark sign of the impacts of the US-China trade dispute on the Japanese industrial sector.

On the monetary policy front, the Bank of Japan (BoJ) indicated that it would be ready to step in with further easing measures should the momentum towards its inflation target of 2 percent loses traction. Typically, added monetary easing via rate cutting will tend to weigh on currency as it decreases its appeal compared to other currencies. The BoJ stated it still sees significant downside risk for the global economy.

(Chart Source: Tradingview 27.12.2019)

From a technical perspective, the range-bound price action of the USDJPY is likely to elicit a significant breakout in the near term. The 109.77 resistance will remain a strong barrier to further gains in the pair. Should the price manage to clear firmly above it, we could be looking at a rally towards the 110 handles. The moving average cross over pattern by the short-term line in red provides some backing to the bullish scenario. With the October trendline helping to confirm this view. That being said, markets tend to test dip demand following multiple rejections as seen in the USDJPY at the 109.77 resistance. Looking at the downside, immediate support should be found at the 109.30 level with further support below at the intersection of the moving average in red and the October trendline.

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.