USD/JPY => Rises from 4-week low
WTI oil => Oil eases from 3-month high
GBP/USD => Eases from 8-week high
USD/JPY in focus ahead of BoJ rate decision
In the first monetary policy meeting of 2022, the Bank of Japan is expected to keep its negative interest rate and asset purchases unchanged. However, there is growing speculation that, in light of rising inflation, the central bank could modify its position on inflation risk for the first time since 2014. The BoJ could also revise its 2022-3 economic growth projections in its quarterly report. The new projections will be closely watched, particularly following comments from BoJ Governor Haruhiko Kuroda that consumer prices are expected to continue rising, owing to increasing energy prices. That said, it’s important to note, that inflation is at 0.9% still well below the BoJ’s 2% target so the BoJ will be in no rush to raise interest rates.
Where next for USDJPY?
USD/JPY trended higher from late September running into resistance at 116.35 the multi-year high. The hanging man candle pattern on January 5th indicated a reversal could be on the cards and the pair headed lower. After breaking through the multi-month rising trendline and the 50 sma a hammer candlestick pattern once again pointed to a reversal, but this time higher. The price has retaken the 50 sma, with horizontal resistance seen at 114.95, ahead of 115.50 and 116.35. Meanwhile, it would take a move below 113.50 the 2022 low for sellers to gain traction towards 113.00 the 100 sma.
Oil looks overbought
Oil prices climbed an impressive 6% across last week, as Omicron concerns eased, the USD weakened, and as the OPEC+ group also struggled to lift output to reach new upwardly revised production quotas. Whilst the price of oil has rallied just shy of 35% since the December low, there are still some risks to be considered, which could hold oil prices back this week. Firstly, technically oil has tipped into overbought territory suggesting that there could be some downside ahead of the next leg higher. Secondly, Omicron is spreading rapidly, and although infections could peak soon, mobility is likely to remain lower, for now, hurting fuel demand in the near term. Finally, China has said that it will release strategic oil reserves around the Luna New Year as part of a coordinated plan with the Biden administration to bring down oil prices.
GBP/USD struggles as Boris Johnson clings to power
The pound rose 0.65% versus the US dollar across the previous week owing to a combination of Pound strength and US dollar weakness. The US dollar came under pressure as inflation hit 7% and doubts increased over whether the US economy would be able to handle the 3 or 4 interest rate hikes expected in 2022. Meanwhile, the Pound was lifted by data showing that the UK economy grew at a faster pace than expected in November, taking the UK economy back to its pre-pandemic size.
Today the US is closed for a public holiday so movement in the USD is likely to be limited. Meanwhile, the pound will be focused on the political trouble brewing in London as Prime Minister Boris Johnson clings to power following revelations that there was a party in Downing Street whilst the rest of England was in lockdown. Mounting pressure on Boris Johnson to resign could drag on the pound.
Support can be found at 1.36 (January 5 high) and 1.3560 (100 sma).
Resistance can be seen at 1.3750 (2022 high) and 1.38 (October 29 high).
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