USDJPY Technical Analysis - Rate hike speculations lead to INCREDIBLE moves

The USDJPY pair breaks down as market participants position for the BoJ exit from NIRP. What’s next?

FL Contributors

Thursday, 07/03/2024 | 08:16 GMT

USD

The Fed left interest rates unchanged as expected at the last meeting and dropped the tightening bias in the statement.
The US PCE came in line with expectations.
The US ADP and the US Job Openings missed expectations.
The latest US ISM Manufacturing PMI missed expectations by a big margin remaining in contraction with the US ISM Services PMI following suit but holding on in expansion.
The US Consumer Confidence missed expectations across the board.
The market expects the first rate cut in June.

JPY

The BoJ kept its monetary policy unchanged as expected at the last meeting with interest rates at -0.10% and the 10 year JGB yield target at 0% with 1% as a reference cap.
The Japanese CPI beat expectations although all measures eased further from the prior readings.
The latest Unemployment Rate remained unchanged hovering around cycle lows.
The Japanese PMIs improved for both the Manufacturing and Services measures although the former remains in contractionary territory.
The Japanese wage data beat expectations by a big margin.
The Tokyo CPI, which is seen as a leading indicator for National CPI, recently came in line with expectations with the measures increasing from the prior report.
The market expects the BoJ to hike rates in March.

USDJPY Technical Analysis – Daily Timeframe

On the daily chart, we can see that USDJPY is rolling over as the market participants started to position for the BoJ to exit the negative interest rates policy (NIRP) probably at the upcoming meeting on the 19^th of March. The massive Yen appreciation started with the miss in the US ISM Manufacturing PMI that depressed global yields and was followed by a miss in the ISM Services PMI and other US labour market data. On the Japanese front, the BoJ members started to deliver hawkish comments recently and we got reports of imminent changes at the upcoming policy meeting. The strong wage data today just added further fuel to the speculation and triggered further carry trades unwind.

USDJPY Technical Analysis – 4 hour Timeframe

On the 4 hour chart, we can see that the sellers piled in aggressively on a break below the support zone around the 149.60 level and increased the bearish bets on the break below the 148.80 level. The target should now be the 146.60 level and it looks like there’s nothing now that can’t stop this train going as the buyers rush for the exits and the sellers sell any rally into the BoJ meeting. One risk could come from a hot NFP report tomorrow, but if the data comes out in line or even below expectations, then we could see another strong wave of selling coming into the market.

USDJPY Technical Analysis – 1 hour Timeframe

On the 1 hour chart, we can see that if we were to get a pullback, a good resistance where the sellers can short from would be the resistance turned support around the 148.80 level where we can find the confluence with the 50% Fibonacci retracement level, the trendline and the red 21 moving average. The buyers, on the other hand, will want to see the price breaking above the trendline to start getting back into the market and target the highs around the 150.90 level, although the chances at the moment are very low.