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USD/JPY attacks 130 handle; bears remain convincing

Volatility will likely remain elevated today as several important US macro events are on the agenda.

After equities markets reopened after a long vacation on a sour note, the USD/JPY pair halted its rebound and resumed its decline, provoking a new rush to the protection of the Japanese Yen.

Japanese macro was somewhat positive

Additionally, the Japanese Yen benefited from an upward adjustment to the nation’s final Manufacturing PMI for December, which came in at 48.9 versus 48.8 before.

In Japan, Governor Haruhiko Kuroda of the Bank of Japan (BoJ) stated on Wednesday that the Japanese central bank would maintain monetary easing to attain the price objective with wage growth. On the other hand, the Nikkei Asian Review reported that Prime Minister Fumio Kishida stated that he and the next BoJ governor would consider whether the inflation goal has to be revised.

Heavy US calendar today

The economic agenda for the United States will be crowded with important data releases. The ISM will release the Manufacturing PMI for December.

The ISM manufacturing index for November reached 49.0, down substantially from 50.2 in October, with the New Orders and Employment sub-indices reporting an additional decline.

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In December, the headline ISM Manufacturing PMI is anticipated to decline to 48.5, while the New Orders Index is projected to rise to 48.1, and the Employment Index is anticipated to reach 49.1. In addition, the US ISM Prices Paid component is expected to keep its downward trend, with a rating of 42.5 in December compared to 43.0 in November.

Moreover, the US Bureau of Labor Statistics will release the November JOLTS Job openings for November.

Investors also await the minutes of the Federal Reserve’s December meeting to determine whether more officials backed a pause in interest rate rises over the coming months.

The markets presently price in a likelihood of over 90% that the Fed would tone down its aggressive language and raise rates by an even more modest 25 basis points in February. This also coincides with a growing number of indications that US inflation has peaked.

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Nevertheless, given that U.S. inflation is substantially over the Fed’s annual target zone, the central bank is widely predicted to keep a restrictive monetary policy in the months ahead.

The daily chart still seems negative as the greenback trades below the medium-term downtrend line. Additionally, the USD/JPY pair has dropped below the 200-day moving average (blue line), confirming the bearish trend.

Currently, the critical level to watch is the 130 threshold. If the pair closes below it, it might decline further toward 125.

USD/JPY daily chart

USD/JPY daily chart, source: author´s analysis, tradingview.com

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