Yesterday, bulls again pushed the USD/JPY pair above the key 145 mark, but failed to gain a foothold there. The yen turned out to be a tough nut to crack, which is still too tough for the dollar bulls.
For a penny of ammunition, for a fragment of ambition
Trampling the USD/JPY pair, which lasted all last week, unexpectedly gave way to a decisive upward movement on Monday morning.
Lacking a new fundamental catalyst, the dollar miraculously managed to hit the 145 peak it tested in September again.
Recall that the last time this barrier was captured turned out to be a disaster for the greenback. In response to the strong fall of the yen, the Japanese authorities carried out the first intervention in 24 years to support their national currency.
Having touched a potentially dangerous line, this time the greenback was more cautious and without intervening in the market, it bounced back as if scalded.
This served as yet another confirmation that USD/JPY bulls are still wary of intervention and do not want to draw fire on themselves.
Of course, the dollar still has a strong amulet in its pocket that will almost save it from a steep plunge. We are talking about the growing monetary divergence between the US and Japan.
But the market is well aware that this is no longer enough for the USD to rise. With the Japanese government continuing to threaten to intervene again, the dollar needs a big boost in the form of strong economic data.
A strong US economy will definitely allow the Federal Reserve to satisfy all its hawkish ambitions, and weak macroeconomic statistics, on the contrary, will prevent this.
Recall that at the September meeting, the US central bank raised interest rates by 75 bps and reaffirmed its willingness to raise the rate more aggressively if inflation continues to be high.
Nevertheless, many analysts believe that the 75 bps step is the ceiling for the Fed. The US central bank is unlikely to decide on anything more, given the uneven economic data.
This opinion was supported by the latest index of business activity in the US manufacturing sector. The ISM reported a reading of 50.9 in September, lower than its forecast of 52.2.
After the release of pessimistic statistics, the yield on 10-year US bonds fell by 14 basis points to 3.66%, and the dollar significantly fell.
Flat may drag on
Today's portion of US economic data is also unlikely to please the USD/JPY bulls. Tuesday's key report will be the release of the index of business activity in the services sector from ISM.
Economists forecast a decline in September to 56 compared to the previous value of 56.9.
The data on the index of new orders for the last month may also turn out to be weak. The indicator is expected to fall to 58.9 against 61.8 recorded in August.
Preliminary estimates are putting significant pressure on the dollar-yen this morning as it struggles to break out of the consolidation phase to try again to break through the defenses at the psychologically important 145 mark.
At the time of release, the quote jumped almost 0.2% and traded around 144.80.
The trigger for the asset was a dovish statement by Japanese Prime Minister Fumio Kishida. The day before, the official said that the government will continue to stimulate the economy, while trying to make the most of the weak yen.
The geopolitical factor also provided significant support to the dollar - the escalation of tension between Japan and North Korea.
At the beginning of the day, it was reported that Pyongyang, which had already tested an unprecedented number of missiles this year, had fired another short-range ballistic projectile.
This time, the target of the North Korean military appeared to be the Hokkaido area, which is considered the second largest Japanese island.
In response to the missile launch over Japan, the Hokkaido authorities issued an air raid alert and urged the people of the region to take shelter.
Meanwhile, Japanese Defense Minister Yasukazu Hamada has signaled that Tokyo is considering all options for strengthening its defenses, including a counterattack.
If the conflict between the countries continues to escalate, the Japanese yen may weaken even more. In this case, bulls on the USD/JPY pair will finally have a real chance to settle above the 145 level.
However, we recommend that traders do not force things yet and be patient, especially since most forecasts for the USD/JPY pair point to further movement in the flat.
Most likely, in the coming days, the dollar and the yen will continue to pull the price rope in the 144-145 range.
Technical picture for the USD/JPY pair
The short-term trend is neutral, but has a tendency to the downside. As the quote fell below the 20-, 50- and 100-EMAs yesterday, this could spell further losses.
If the bears manage to take the asset below 144, this will open a fast route to 143.90.
