The USD/JPY pair has seen its retracement extend below 136, however, economists at Société Générale expect the pair to find solid support at the 135.20/134.60 zone. The pair has recently been challenging the 200-DMA and is close to the graphical resistance of 138, representing December/March peaks. This hurdle must be overcome to affirm a larger bounce in the currency pair.
While a short-term pullback is not ruled out, the 135.20/134.60 zone, the 38.2% retracement of the last bout of the up move, should provide support. Should the pair establish above 138, the phase of the rebound could extend towards projections of 139.60/140.30.
The USD/JPY currency pair is an important barometer for international trade conditions, as well as the overall health of the global economy. The US dollar and the Japanese yen are two of the most traded currencies in the world, and their exchange rate can be influenced by a wide range of factors. These include economic data releases, central bank policy decisions, geopolitical developments, and market sentiment.
The recent USD/JPY retracement can be attributed to a number of factors. First, disappointing US economic data has weighed on the greenback, with recent reports showing weaker-than-expected retail sales, inflation, and manufacturing output. These figures have heightened concerns about the health of the US economy and have led some market participants to question the timing of the Federal Reserve’s (Fed) planned interest rate hikes.
Second, the global rise in COVID-19 cases has contributed to increased demand for safe-haven assets such as the Japanese yen. As investors grow concerned about the potential economic impact of the Delta variant and other coronavirus strains, they have been flocking to the perceived safety of the yen, putting downward pressure on the USD/JPY exchange rate.
Moreover, risk sentiment has been impacted by concerns about China’s regulatory crackdown on technology and education companies. This has led to increased demand for assets denominated in Japanese yen, as investors seek refuge from the uncertainty surrounding these sectors.
However, as Société Générale economists have observed, the USD/JPY pair is expected to find support in the 135.20/134.60 zone. This support level is significant as it represents the 38.2% retracement of the recent up move in the currency pair.
Should the currency pair establish above the key resistance level of 138, it could signal a continuation of the rebound towards the 139.60/140.30 zone. This would imply a positive outlook for the global economy as well as potentially increasing expectations for upcoming monetary policy decisions.
For instance, a rising USD/JPY exchange rate could be interpreted as an indicator that the market is pricing in a more hawkish stance from the Federal Reserve, which could lead to higher interest rates in the US. Conversely, a weaker yen against the US dollar might suggest that the Bank of Japan (BOJ) is maintaining its ultra-accommodative monetary policy, which involves keeping interest rates and bond yields at very low levels in order to stimulate economic growth.
In conclusion, the recent retracement of the USD/JPY currency pair below the 136 level can be attributed to factors such as disappointing US economic data, increased demand for safe-haven assets, and concerns about China’s regulatory crackdown. Nevertheless, there is potential for support in the 135.20/134.60 zone, and a break above the key resistance level of 138 could signal a continuation of the rebound. As a result, the USD/JPY exchange rate may serve as an important indicator for global economic health and monetary policy expectations in the coming months.
