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USD/JPY posts highest weekly close in months still limited above 114.00

  • Dollar about to post highest weekly close since Mach against yen. 
  • Spot remains unable to rally above 114.00. 

The USD/JPY pair managed to recover on Friday and erased all losses during the US session. Again, it failed to rally above 114.00 and pulled back. 

A stronger US dollar but not enough

On Friday the pair bottomed at 113.61 after the release of US data. It quickly bounced back to the upside and jumped to 114.44. Again it failed to hold and pulled back toward 114.00. It is about to post the third daily close in a row around that level. The US dollar continues to move sideways, undecided if it continues to rally or if it allows a correction. 

US bond yields did not support the upside in USD/JPY during the week. The 10-year yield has been falling consistently since last week and today bottomed at 2.32%, the lowest in 12 days. The yen failed to appreciate from lower yields and also from risk aversion coming from emerging markets that had the worst week in five months. On the opposite, equity prices in Wall Street continued to rally. The Dow Jones hit a new record high on Friday. 

The pair is likely to be affected by speculations about what the Federal Reserve could do at the next meeting. Today’s US data, including NFP, showed a solid economy, that leaves the door open to another rate hike from the Fed. 

“The FOMC still appears ready to raise rates in December despite recent inflation misses. The Committee met this week but kept policy unchanged as expected. The statement released Wednesday was notably upbeat about the economy, as the FOMC upgraded the assessment of a “moderate” pace of expansion to “solid”—quite a strong word for this committee, which signals their confidence the planned December rate hike is on course,” said analysts at Wells Fargo. 

USD/JPY Levels to watch 

FX Strategists at UOB Group hold a neutral view and expect USD/JPY to trade sideways within the 113.00/114.50 range. “The key level to watch is at 114.50 as a break above this strong resistance could lead to a rapid rise. At this stage, there is no ‘early’ indication that a break higher is imminent”, they concluded. 

To the downside, a critical technical level could be seen around 113.00/10. The 20-day moving average stands at 113.10 while 113.00 capped the upside in September and early October. A consolidation below could signal correction ahead. 

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