USD/JPY holds weekly gains near 130.00, high volatility to persist

• The Japanese yen, among the G10 countries with the worst performance after the status quo of the BOJ.
• The US dollar is torn between rising yields and risk sentiment.
• USD/JPY is trying to rally, still capped below the 20-day SMA.

The USD/JPY it pulled away from the daily highs during the American session on Friday, pulling back below 130.00. The pair reached 130.60, the highest level in two days. The USD weakened late on Friday amid improving risk appetite.

In economic data, the National Association of Realtors said Friday that US Existing Home Sales fell to 4.02 million (annual rate) in December, above market consensus of 3.95 million. Earlier, Japan reported that the core Consumer Price Index for December rose 4.0% from a year earlier, the highest level in 41 years.

USD/JPY Trend remains bearish, although it has moved sideways for the past five days, in a wide range between the 127.50 area and the 20-Day Simple Moving Average near 131.00. The mentioned line has become a critical dynamic resistance. If the dollar manages to break above, a deep rally looks likely.

A week of volatility for the yen, more to come

Despite finishing off the highs, the US dollar is on track to post the biggest weekly gain in months against the Japanese yen. The failure of the Bank of Japan to “pivot” from its current ultra-accommodative monetary policy weighed on the yen. Still, market participants expect a change during the second quarter, when Kuroda’s term expires in April. The latest core CPI figures from Japan favor such a change.

Likewise, the abrupt movements in the yield of government bonds favored the volatility of the yen crosses. Fears about the economic outlook fueled demand for security, but in addition, central bankers kept talking about the need to raise interest rates for some time, limiting the fall in yields.

Next week, attention will shift from the BOJ to the Fed. The FOMC will announce its decision on February 1. A rate hike of 25 basis points is expected. However, market participants will be looking for clues as to how far the Fed is willing to go in tightening monetary policy and how it views the economic outlook.

technical levels