USD / JPY technical analysis: bearish momentum remains

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The outlook for the US dollar was strengthened last Friday when official figures confirmed that US inflation hit a new decades-long high last month, which should keep the Federal Reserve (Fed) on track to accelerate. the normalization of its monetary policy. The price of the USD / JPY currency pair moved closer to the 113.80 level after the data and stabilized around the 113.46 level as of this writing. U.S. dollar exchange rates fluctuated briefly ahead of the weekend as figures from the Bureau of Labor Statistics revealed that a 0.8% increase in U.S. inflation in November boosted the annual rate of growth of US prices at 6.8% last month.

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The yen is a popular asset during times of turbulence.

Meanwhile, inflation fell from 4.6% to 4.9% for November, the highest level since the year ending June 1991, even after excluding volatile price changes for food and the energy of the numbers after a 0.5% increase in core inflation in November. Gasoline, housing, food, used cars and trucks, and new vehicles were among the main contributors to the price hike in November, all goods whose supply has recently been disrupted by efforts to contain the Corona virus, which has caused prices to rise sharply in the past. year.

Catherine Judge, CIBC Capital Markets economist, said: “With inflation at a high rate, the Fed is expected to step up its quantitative easing program at the December meeting, end in early spring and allow for a hike. rates in the second quarter. 2022, when the winter wave of Covid is late for us. “

Inflation has risen sharply around the world this year due to shortages of goods and labor and other factors, although price increases have been stronger in the United States where public financial support to households was much more important than elsewhere at the height of the pandemic. November was the second month in a row that the headline CPI rose more than 6%, well above the Fed’s average inflation target of 2% and likely to keep the bank on track to accelerate. normalization of its monetary policy parameters.

The strength and persistence of recent increases in inflation has led Fed policymakers to rethink previous expectations that price pressures would quickly dissipate on their own, and they almost sealed the deal for a decision. this week to speed up the process of liquidating the bank’s bond. – purchase program.

Ten of the twelve voting members of the FOMC have publicly indicated over the past month that they may support a move to reduce the Fed’s monthly bond purchases at a faster pace than agreed in November. Many economists now expect the Fed to end its bond purchases in March instead of June 2022, which would allow the bank to start raising its policy rate as soon as possible in the second quarter of the year. next year if inflationary pressures remain high enough in the interim.

Technical analysis

The USD / JPY close this year will depend on what is issued by the US Federal Reserve this week. So far the currency pair is in a neutral position with a bearish bias, and stability below 113.00 support will increase bearish control to continue to fall. Depending on the performance of the daily chart, the next bearish targets will be 112.50, 111.75 and 110.60.

On the upside, and based on performance over the same time frame, the resistance at 114.20 will be important for the bulls to push further and change the current situation. In addition to raising interest rates, one must take into account the extent of risk appetite.

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