USD/JPY outlook: Yen sliding to intervention territories

Yesterday saw safe-haven assets like the Japanese yen rally, benefitting from Putin's updated stance on Russia's nuclear arms doctrine after Ukraine fired US-supplied missiles into the nation for the first time. However, just as quickly as the situation escalated, the market’s panic was short-lived. The USD/JPY recovered to close the session flat, and similar price action unfolded in equity indices. Today, the USD/JPY finds itself well above the 155.00 handle again, as the US dollar rebounds across the board. Indeed, pairs such as the EUR/USD and GBP/USD were falling back, even though in the case of the cable we had some stronger-than-expected UK inflation data out this morning, which effectively ended any chances of another rate cut by the BoE this year. The focus for the USD/JPY is now turning to the potential for intervention from Japan. The USD/JPY is now inside the intervention zone between 155.00 to 160.00, where we saw a couple of manipulation efforts from Japanese authorities in the summer. Against this risk, the USD/JPY outlook is far from certain despite the ongoing strong bullish trend.

Markets shrug off Russia-Ukraine war escalation

The big news yesterday was that Ukraine fired US-supplied long range missiles into Russia for the first time. The news rattled stock markets and the USD/JPY initially, before quickly reversing. In the end, investors probably concluded that with Biden’s days numbered as US president, Russia may hold off from responding aggressively until Trump is appointed. Reports suggest that Putin is ready to discuss a ceasefire deal with Trump, although the former has a list of heavy demands including Ukraine abandoning its plan to join NATO.

Nevertheless, Kyiv is preparing a response from Russia, although despite Putin approving an updated nuclear doctrine, which broadens the conditions under which Russia might deploy nuclear weapons, an atomic attack is probably not on the cards at this stage. Use of atomic weapons is unthinkable, although we are getting close to very dangerous territories.

USD/JPY outlook: Yen intervention on the cards?

The yen’s continued slide has Japan’s government worried. Finance minister Kato said they will take appropriate action against excess forex moves, which they clearly believe has been the case with the USD/JPY going past the 156.00 level last week. It is not clear they have taken any action, but the verbal warning nonetheless applied pressure on all yen crosses earlier this week. With the yen weakening again, this time we could see some actual intervention – so be on the lookout for such a move.

US calendar is quiet today

On the US front, there’s not much in the way of key data, so all eyes are on Fed speakers today, with a mix of dovish and neutral voices. FOMC members Barr, Cook and Bowman are among the speakers. Following today’s rally in the US dollar, the second half of the session might see the greenback ease back against certain currencies amid profit-taking. We could be in for some range-bound price action until Friday’s release of global PMIs.

Technical USD/JPY outlook: key levels to watch

Source: TradingView.com

The bullish trend on the USD/JPY remains intact and this was again evidenced yesterday with rates bouncing strongly off the 21-day exponential moving average, and the subsequently follow-up buying pressure today. With rates back above the 154.80-155.00 pivotal area, this zone is now the most important short-term support to watch moving forward. In terms of resistance, 156.00 needs to be monitored now as approach it, followed by last week’s high of 156.75. There are not many other obvious resistance levels apart from round handles like 158.00 and 159.00, until we potentially get to 160.00.

If the abovementioned support zone between 154.80 and 155.00 fails to hold, then this could pave the way for a potential drop to 152.00, where is next big level, where we also have the 200-day average coming into play. This level I snow the line in the sand for – a closing break it would nullify the bullish technical USD/JPY outlook.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the company you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

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.