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Summary: Due to the prevailing soft market risk sentiment, bears capitalize on the weakness of the US dollar, intensifying the selling pressure on USDJPY. With signs of a death cross formation in the daily chart structure, bears may seize the opportunity to accelerate the asset's sell-off.

Fundamentals

On Friday, USDJPY displayed a downward trend for the second consecutive day, falling below 150.30 during the European session. The asset faces new challenges due to the softening market risk sentiment. This is mainly attributed to a series of pessimistic economic data from the US, raising doubts about the Fed's inclination to raise interest rates and exacerbating the overall sentiment surrounding the asset.

However, in the short term, the downward trend of USDJPY receives some support amid the Bank of Japan's more dovish stance.

BOJ Governor Kazuo Ueda emphasized the central bank's commitment to maintaining an ultra-loose monetary policy, citing the need for patience in the face of uncertain inflation dynamics.

Ueda stated, "Trend inflation is likely to gradually accelerate toward our 2% inflation target through fiscal 2025. But this needs to be accompanied by a positive wage-inflation cycle." He added, "Uncertainty on whether Japan will see such positive wage-inflation cycle is high."

Regarding the performance of the 10-year Japanese government bond yields, Ueda mentioned that, despite upward pressure, he does not expect them to significantly rise above the reference level of 1%.

Looking ahead, Ueda clarified the BOJ's stance on potentially ending yield curve control and negative interest rate policies, stating, "We will consider ending yield curve control and negative interest rates if we can expect inflation to stably and sustainably meet our 2% target." He emphasized that the sequence of policy adjustments would depend on various factors, including economic conditions, price trends, and market developments.

In terms of the market, due to the continued decline in US Treasury yields, USDJPY fell below the 150.00 level on Friday, reaching a new low since the previous Monday. The US dollar also erased earlier modest gains against the euro, pound, and kiwi, while experiencing slight declines against the Swiss franc, Canadian dollar, and Australian dollar. The US dollar's decline poses a significant blow to its resilience this week, sparking renewed debates about the potential technical breakdown of the US dollar as the market anticipates the upcoming week.

Japanese Vice Finance Minister Ryosei Akazawa reiterated the government's stance on possible intervention in the foreign exchange market. He stated that the government would intervene in the forex market to curb excessive volatility but did not specify the specific exchange rate level that would trigger such intervention. Akazawa emphasized that any forex intervention would aim to address excessive volatility, not just respond to yen weakness.

However, considering the elevated risk sentiment and the possibility of intervention, bears may take advantage of the weakened US dollar to further sell USDJPY. At this juncture, authorities could trigger a stampede event with only a small portion of funds, reminiscent of last year's intervention. The funds utilized for this intervention are relatively inexpensive.

Technical Analysis

USDJPY continued its descent today. Despite bulls briefly testing last year's high at 151.94 and experiencing a significant pullback, the market showed impulsive movements due to extremely mild risk sentiment and a death cross signal in the daily chart structure.

Simultaneously, momentum indicators have reached a critical stage. The Average Directional Movement Index (ADX) is below the 25 threshold, indicating a lack of market trend. On the other hand, the Relative Strength Index (RSI), after hovering above the 50 midpoint for the fourth consecutive month, is now turning downward, signaling increased bearish pressure. Crucially, the stochastic oscillator is gradually declining, preparing to test the resistance set by the moving average line. Breaking below the average line would be considered a strong bearish signal.

Currently, USDJPY bears have breached the lower limit of the trend channel, the October 3rd high at 150.15, and the 50-day SMA at 149.35. If they break below 147.71 again, the downward path will be relatively clear, extending until the 144.99-146.65 range.

Overall, there are signs of life in USDJPY bears, but the battle continues; bulls still aim to reclaim levels above 150.00. However, given the current situation, the path of least risk is downward. In terms of trading strategy, going short at highs is preferred.

Trading Recommendations

Trading Direction: Short

Entry Price: 150.00

Target Price: 140.04

Stop Loss: 151.50

Valid Until: 2023-12-01 23:55:00

Support: 148.78, 148.20, 147.28

Resistance: 150.00, 150.17, 151.42