Currency Pair of the Week USDJPY

Currency Pair of the Week: USD/JPY

This is shaping up to be a potential busy week for the US Dollar. On Wednesday afternoon, the FOMC meets to discuss interest rate policy. That evening, Joe Biden will address the Joint Sessions of Congress. In addition, economic data could cause USD volatility this week. Also this week, FAANGs will release earnings (minus Netflix). Expect more of the same this week from Powell and fiends this week (See our Fed Preview here).

FOMC

At the March meeting, the FOMC noted that the jump in yields was due to an increase in the economic recover and that it was unlikely to last. Fed Chairman Powell said that their primary focus is to maximize employment. Since then, the increase in yields has stalled and employment has picked up. However, there are still roughly 8 million jobs that have not been recovered since the pandemic. Expect more “Wait and See”.

US Spending!

Joe Biden likes to spend! In addition to his nearly $2 trillion stimulus package and the nearly $2 trillion infrastructure package, on Wednesday evening he is set to speak about his nearly $2 trillion “American Families Plan”. How does he plan to pay for it? This has been a sensitive topic for the markets as he is looking to double the capital gains tax to 40% for those making over $1 million (among other tax increases).

Other data

Watch the Q1 Advanced GDP this week as well. In addition, earnings surprises could affect the stock market which would inversely affect the USD. One more thing: $200 billion in auctions this week!

Everything you need to know about the Federal Reserve

Coronavirus heats up

The Japanese Yen may be looking at some volatility itself. As opposed to the US, Japan has several prefectures back under restrictions due to the spread of the coronavirus. Tokyo, Osaka, Kyoto, and Hyogo are all under State of Emergency and the vaccine rollout remains well behind that of the US and UK. Remember that the Summer Olympics are set to begin in less than 90 days!

BOJ!

In addition, the BOJ meets on Tuesday. As discussed in the Week Ahead, at the March BOJ meeting, the central bank announced several monetary policy initiatives, including widening the band around the zero target on the 10-year JGB from 20bps to 25bps. As this was meant to show that the BOJ is doing “something” with stocks at post-pandemic highs, the committee will most likely wait for more data to see if their recent actions are working.

Complete Guide to the Bank of Japan

Yen and Yields

As much as we can discuss monetary and fiscal policy, the direction of USD/JPY is driven a lot by US interest rates. Notice at the bottom of the daily chart below that the current correlation coefficient between USD/JPY and the US 10-year yield has been positive since the start of 2021. The current correlation coefficient is +0.92. For reference, the correlation coefficient of +1.00 means that the 2 assets move together in the same direction on a 1 to 1 basis. A reading of +0.92 is pretty close!

Source: Tradingview, City Index

More Technicals

From January 6^th through March 31^st, USD/JPY had been on a one way move higher. Before that, the pair had been moving lower in a descending wedge formation and broke higher out of the wedge on January 29^th. USD/JPY reached its target of a 100% retracement of the wedge on its way to the March 31^st high of 110.97. Since April 1^st, the pair has moved aggressively lower to the 38.2% Fibonacci retracement level from the January lows to the March highs near 107.73. On Friday, the pair formed a hammer candlestick, indicating the possibility of a reversal. Resistance is at the long-term trendline dating back to June 2015, near 108.50. If price moves higher from there, it will prove a false break below, as well as a shallow retracement (to only the 38.2% Fib level). This could open the door for a move higher. 109.85 is horizontal resistance, followed by the March 31^st highs at 110.97. Support below is at the 50% retracement level from the previous mentioned timeframe near 106.73, horizontal support near 106.16, and the confluence of the 200 Day Moving Average and the 61.8% Fibonacci retracement level near 105.73.

With both the FOMC and BOJ monetary policy meetings this week, USD/JPY has the potential to be a big mover this week. In addition, anything that affects US yields (such as the auctions) should also affect the direction of the pair due to their correlation. Also, continue to watch the coronavirus and vaccine supply in Japan, which could add volatility to the pair.

Learn more about forex trading opportunities.

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.