The USD/JPY has rebounded to around 150.00 area after testing a multi-week low near the 149.00 handle on Monday on the on the back of dovish comments from Fed’s Waller, who said he’s inclined to cut rates in December.
However, with the yen being the strongest performer last week, underscoring expectations about a potential rate hike from the Bank of Japan, just as the world’s other central banks are now on the easing path, there is a good chance the USD/JPY could resume lower.
Investors will be looking forward to the release of critical US economic releases this week. With a jam-packed calendar including the ISM ISM Non-Manufacturing PMI PMI, and the monthly nonfarm payrolls report to come, traders are bracing for volatility. These data points should impact the USD/JPY’s direction, especially with both the Fed and BoJ policy decisions looming in December.
BOJ Rate Hike Expectations Underpin Yen’s Appeal
The yen has been gaining traction in recent weeks as speculation mounts that the Bank of Japan might raise rates at its final meeting for 2024 this month.
This expectation isn’t just bolstering the yen against the dollar; it’s also pressuring other pairs like EUR/JPY, which recently dropped below 160.00 to reach below 156.50 on Monday before bouncing back. The euro’s struggles, tied to Europe’s ongoing economic and political issues, amplify the yen's strength.
But it looks like speculators are trying to ride the yen rally. Last week, large speculators piled into long positions on the yen amid renewed expectations of a 25 basis point hike from the Bank of Japan this month.
Notably, large speculators reduced short positions and ramped up long exposure by more than 23%, adding nearly 15K contracts to their bullish bets.
Key US Macro Data to Shape USD/JPY Direction
Looking ahead to this first week of December, all eyes are on pivotal data on US economic calendar. Signs of weakness in employment reports might cement a December rate cut expectations, currently priced with a 72% probability, according to the CME’s FedWatch tool.
Meanwhile, the November jobs report, due Friday, will be the headline event. After last month’s unexpectedly strong figures and the political shift from Trump’s re-election, expectations for aggressive Fed cuts in 2025 have waned.
Whether the Fed decides to cut rates in its final 2024 meeting could hinge on this critical data, setting the tone for USD/JPY’s trajectory into the new year.
Here is a list of key data highlights from the US and what to expect:
USD/JPY Technical Analysis and Trade Ideas
Source: TradingView.com
Last week’s drop in USD/JPY underscores a possible key swing low for the yen, potentially setting the stage for further recovery in the yen.
But for that to happen, the USD/JPY will need to stage a decisive break below the key 150.00 support level. While it has broken below it already, it now needs to stay below it to encourage the bears to come out more forcefully now.
Previously a strong resistance area, this level now serves as a battleground. A rebound here could see the pair testing the 200-day moving average and targeting resistance around 151.30-152.00.
However, if support fails—marked by a decisive daily close below the 149.40-150.00 range—a sharper decline towards 147.20 or even 144.53 (the next potential support levels) may follow.
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