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

• Japanese Yen among worst G10 performers after BoJ status quo.
• US Dollar mixed between higher yields and risk sentiment.
• USD/JPY attempts recovery, still limited below the 20-day SMA.

The USD/JPY moved off daily highs during the American session on Friday, pulling back under 130.00. The pair peaked at 130.60, the highest level in two days. The greenback weakened late on Friday amid an improvement in risk appetite.

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

The trend in USD/JPY is still bearish, although it has been moving sideways during the last 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 profound recovery seems likely.

A volatile week for JPY, more to come

Despite ending far from the top, the US Dollar is on its way to the biggest weekly gain in months versus the Japanese Yen. The fact that the Bank of Japan did not “pivot” from its current ultra-accommodative monetary policy weighed on the Yen. Still, market participants await a shift during the second quarter when Kuroda’s term expires in April. Japan’s latest Core CPI numbers favor that Change.

Also, sharp moves in government bond yields favored volatility in Yen’s crosses. Fears about the economic outlook boosted the demand for safety but also, central bankers continued to talk about the necessity of higher interest rates for a some time, limiting the downside in yields.

Attention will turn next week from the BoJ to the Fed. The FOMC will announce its decision on February 1. A 25 basis points rate hike is expected. However, market participants will look for clues about how far the Fed is willing to go on tightening monetary policy and how it sees the economic outlook.

Technical levels