USDJPY hits fresh 24-year high on ascending triangle breakout

11 Oct 2022

Since the start of 2021, the USDJPY staged a dramatic rise from 102.591 to currently hovering around 145.7. The latest price levels also logged fresh 24-year high that market has not seen since August 1998. The steep depreciation of the yen against the greenback could be attributed to the monetary policy divergence between the two countries as well as the strength of the safe haven dollar.

The US Dollar Index (DXY) that gauges the strength of the US Dollar against a basket of rival currencies climbed back to above 113.

Upbeat US jobs data validates hawkish Fed

Last week, the Nonfarm Payrolls released by the US Bureau of Labour Statistics revealed that the US labour market in September was more robust than expected, coming in at 263,000 new jobs, higher than the market expectation of 250,000. Moreover, the unemployment rate in the US also declined from 3.7% to 3.5%.

As employment is a key metric in assessing the health of an economy, the stronger than expected labour market suggests that the Federal Reserve has further room to tighten its monetary policy without being too restrictive on the economy. Expectations of 75 basis points rate hike in the November Fed meeting provided a boost to the US Dollar as higher yields attract capital away from rival currencies.

Escalating geopolitical tensions increases demand for safe haven USD

On Monday, Russia launched the biggest air strikes on Ukraine since the start of the war in February in 2022. Missiles were shot at Ukrainian cities, killing civilians and destroying Ukraine’s key infrastructures like power grids.

At times of increased geo-political uncertainties, the negative risk sentiment tends to benefit US dollar as investors seeks shelter in safe haven USD-denominated assets.

Technical Analysis

USDJPY broke out of an ascending triangle pattern which is a bullish display of upside continuation. A breakout of this chart pattern would set a technical target as high as the depth of the opening of the triangle. The Relative Strength Index (RSI) is also above the neutrality zone of 50, signalling a strong bullish momentum. Another convincing indication of the bullish trend is the support the pair has found above the 20 EMA.

Looking ahead, we anticipate the pair to extend its gains to test the 1998 high at 147.71 (R1). Beyond the level, it will be highly probable for the pair to achieve the ascending triangle breakout target at 149.624 (R2). In the event of a retracement, 145 (S1) should provide support for the pair and the uptrend remains intact as long as prices are above 143.17 (S2).

Wednesday, October 12

USD – Fed’s Mester speech, Producer Price Index ex Food & Energy (YoY)(Sep)

Thursday, October 13

USD – FOMC Minutes, Fed’s Bowman speech, IMF Meeting, Consumer Price Index (MoM)(Sep), Consumer Price Index (YoY)(Sep), Consumer Price Index Core s.a(Sep), Consumer Price Index ex Food & Energy (MoM)(Sep), Consumer Price Index ex Food & Energy (YoY)(Sep), Initial Jobless Claims(Oct 7), Initial Jobless Claims 4-week average(Oct 7).

Friday, October 14

USD – IMF Meeting, Retail Sales (MoM)(Sep), Retail Sales Control Group(Sep), Retail Sales ex Autos (MoM)(Sep), Retail Sales (MoM)(Sep), Retail Sales Control Group(Sep), Retail Sales ex Autos (MoM)(Sep), Fed Index of Common Inflation Expectations(Q3), Michigan Consumer Sentiment Index(Oct), UoM 5-year Consumer Inflation Expectation(Oct)


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