USD/JPY: Japanese yen spikes to March highs after Fed rate decision

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his… read more.
on Nov 6, 2020
  • The USD/JPY pair dropped to the lowest level since March as traders reacted to the Fed rate decision.
  • The bank left interest rate and quantitative easing policies unchanged.
  • Data from Japan showed that household spending improved slightly in September.

The USD/JPY pair is down for the past three consecutive days as traders react to the Fed decision, American election, and Japan wage numbers. It is trading at 103.44, which is 1.80% below this week’s high of 105.35.

USD/JPY
USD/JPY hourly chart

Fed and US election

The biggest mover of the USD/JPY this week has been the US election. While the final results have not been released yet, analysts and people in the gambling market believe that Joe Biden has an upper hand. He is already leading by a wide margin in most states. However, Donald Trump has a minor path to re-election when you look at the electoral college.

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A victory for Biden is seen as being negative for the US dollar. Indeed, the dollar index has dropped by almost two per cent from its weekly high of $94.29.

The pair is also reacting to the Federal Reserve interest rate decision. In its decision yesterday, the bank left interest rate unchanged at the range of 0.0% and 0.25%. They have been in this range in the past seven months.

Also, the bank left its quantitative easing policies unchanged and warned that the situation remained dire for the American economy. In a statement, Jerome Powell, Fed chair, emphasized that the bank had more tools to help support the economy. In a statement to Bloomberg, Stephen Stanley of Amherst Pierpont said:

“That leaves the door open for something new, either in terms of changing the pace or composition of asset buys or of introducing new forward guidance on the topic, in future meetings.”

Japan household spending

The USD/JPY is also moving because of Japan’s household spending data. According to the country’s bureau of statistics, household spending rose by a monthly rate of 3.8%. That was better than the 2.2% increase that analysts polled by Reuters were expecting. It was also an improvement from the previous month’s increase of 1.7%.

The spending declined by 10.2% on an annualised basis. That was better than the decline of 10.7% that analysts were hoping for.

Overtime pay, which is an important gauge of the strength of Japan’s corporates, declined by 12% in September while the average cash earnings fell by 0.9%.

USD/JPY technical outlook

USD/JPY
USD/JPY technical chart

On the daily chart, we see that the USD/JPY pair has been on a strong downward trend recently and is now at the lowest level since March 12. The pair has also moved below the 50-day and 25-day exponential moving averages. Notably, it has moved below the descending channel that is shown in green. Therefore, I believe that the downward trend will continue as bears aim for the next support at 103.00. Become a better trader with our free forex trading courses.

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