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Structural Downtrend Reaches Its Limit
Forex
Central Bank
Summary:
The Japanese yen recovered part of its intraday losses against the US dollar amid market expectations that the Bank of Japan (BoJ) will raise interest rates again in December, However, two declining manufacturing indicators suggest that the future path of rate hikes remains uncertain.
Buy
CLOSEDUSDJPY
End Time
150.068
Entry Price
158.120
TP
146.600
SL
150.373 +0.790 +0.53%
1047
Points
Loss
146.600
SL
149.021
CLOSING
150.068
Entry Price
158.120
TP
Fundamentals
The Tokyo November CPI data released last Friday showed renewed inflationary pressures in Japan, fueling expectations of further tightening by the BoJ.
Tokyo Core CPI (excluding volatile fresh food costs) rose from 1.8% to 2.2% year-on-year, exceeding the forecast of 2.1%, primarily due to reduced energy subsidies.
Core CPI (excluding food and energy) climbed from 1.8% to 1.9% year-on-year, surpassing the previous month's figure of 1.8%.
Service prices, a key indicator of domestic demand-driven inflation, increased from 0.8% to 0.9% yoy.
Headline CPI saw a significant jump from 1.8% to 2.6% yoy.
The rise in inflation has heightened expectations for a BoJ policy shift. Overnight swaps indicate a more than 60% chance of a rate hike at the December meeting. Meanwhile, over 80% of economists surveyed predict a policy adjustment by January.
The BoJ's current policy rate stands at 0.25%, with a decision on adjustment likely in the coming months.
Regarding other economic indicators, Japan's October industrial output grew by 3.0% month-on-month, marking the second consecutive month of growth but falling short of the expected 3.9%. While an improvement from September's 1.6% mom growth, future projections suggest declines for two consecutive months: a 2.2% drop in November and a further 0.5% decrease in December, primarily due to weaker production in machinery and transportation equipment.
A Ministry of Economy, Trade, and Industry official expressed concerns about "downside risks from overseas demand," which could heavily impact the production of semiconductor manufacturing equipment and motor vehicles.
November's manufacturing PMI slipped to 49.0 from 49.2 in October, hitting its lowest level since March. This decline reflects ongoing challenges, with weak demand dragging down new orders and production levels.
Technical Analysis
Last Friday, USDJPY fell to a six-week low as stronger-than-expected Tokyo November inflation bolstered expectations of a BoJ rate hike at the upcoming policy meeting, accelerating the pair's decline.
The bears broke through the critical support level of 150.18, with a weekly close below this level to the boost negative signal for extension towards the next strong support at 149.21.
However, on Monday, the bears failed to push the price further to 149.21 and instead saw a strong rebound above 150.00, indicating resistance to further declines in this region.
This scenario suggests two possible outcomes:
Reversal at 150.00: The bearish momentum halts, leading to a rebound that provides initial signals for a healthy correction and paves the way for the resumption of a broader bullish trend.
Deeper Correction: The pair undergoes a deeper correction after more than two months of an uptrend.
We are more inclined to favor the first scenario.
Trading Recommendations
Trading Direction: Buy
Entry Price: 149.88
Target Price: 158.12
Stop Loss: 146.60
Valid Until: Dec 17, 2024 0 23:55:00
Support: 149.52, 149.21, 148.71, 148.16
Resistance: 150.45, 150.74, 151.28, 151.95
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