Fundamental analysis of USD/JPY for 15.02.2024

The USD/JPY exchange rate experienced a significant correction, declining from the local high at 150.880 to the level of 150.250. 

This movement comes before the release of key economic indicators from Japan and the US, which may affect the trend of this currency pair. Japan's economy has been in the spotlight as it unexpectedly slipped into recession, with two consecutive quarters of contraction contradicting growth expectations. Because of this recession, Japan lost its status as the world's third largest economy to Germany. 

After falling 3.3% in the previous quarter, GDP fell 0.4% year-on-year in the fourth quarter, well below the 1.4% growth rate. The GDP data has raised doubts in the context of plans to end the Bank of Japan's ultra-soft monetary policy, which is expected to begin this year. Japan's economic performance suffered from a slowdown in domestic demand and consumer spending, a key driver of economic activity, fell 0.2%, contrary to expectations. In addition, capital investment fell 0.1%, contrary to growth expectations and indicating a slowdown in private sector growth. Nevertheless, external demand indicators are positive: exports increased by 2.6% quarter-on-quarter, which had a positive impact on GDP. 

In the US, investors are paying attention to unemployment claims and retail sales. Retail sales are forecast to decline slightly in January, while new jobless claims are expected to rise. These indicators, along with the inflation index, may influence the view on the Fed's policy direction, especially given the Fed's recent comments indicating the pace of rate changes in the future. 

Factors such as the outlook for Japan's economic recovery, economic conditions in the US, central bank statements and potential market interventions have a stronger influence on the USD/JPY exchange rate. When Japan's economy entered recession, the Bank of Japan, especially market participants and analysts, revised their expectations regarding the direction of Japan's monetary policy in response to the current economic downturn. The trend towards negative interest rates is under scrutiny. 

Technical Analysis and Scenarios:

Alligator Indicator: Indicates an uptrend as the jaw (blue line) is below the lips and teeth (green and red lines), suggesting that the market is in an uptrend. However, this uptrend may be losing strength. The Awesome Oscillator (AO) and Accelerator Oscillator (AC) are both in the red zone, which is a confirming sell signal. This suggests that despite the uptrend signal from the Alligator, momentum is shifting to the downside. Primary analysis is leaning towards a bearish outlook in the short term given the sell signals from AO and AC, despite the Alligator indicating an uptrend. This suggests that the market may be on the cusp of a trend reversal or correction. The strategy suggests short selling with a conservative stop loss to protect against a resumption of the uptrend.

Main scenario (SELL)

Recommended entry level: 149.450

Take Profit: 148.700

Stop Loss: 149.550

Alternative scenario (BUY)

Recommended entry level: 150.750

Take Profit: 151.000

Stop loss: 150.650