Japanese Yen Remains Subdue ahead of BoJ’s Decision

• The BoJ interest rate decision is due today, and the Nikkei opened high before the announcement.

• The dollar eases as the market sees Donald Trump put effort into controlling the U.S. inflation rate.

• Eyes on today's eurozone and UK PMI readings.

Market Summary

The market is focused on the upcoming Bank of Japan (BoJ) interest rate decision, with expectations of a 25 bps rate hike, potentially raising rates to an 18-year high. However, Japanese equities have rallied ahead of the announcement, suggesting the decision is already priced in, which may limit its impact on the yen. Meanwhile, markets are digesting Trump‘s speech at the World Economic Forum, where he urged OPEC to increase oil supply to lower prices. Oil prices dropped to a 10-day low following the remarks, while the dollar softened on expectations of reduced inflation if oil prices fall. In contrast, Wall Street gained on optimism surrounding Trump’s efforts to control inflation, which could encourage a dovish tilt from the Fed.

In the forex market, attention is on eurozone and UK PMI readings due today, as a weakening dollar may support gains in the euro and pound. In the crypto market, bearish momentum has eased, with cryptocurrencies staging a technical rebound from the previous session.

Current rate hike bets on 29th January Fed interest rate decision:

Source: CME Fedwatch Tool

0 bps (97.9%) VS -25 bps (2.1%)

Market Movements

DOLLAR_INDX, H4

The U.S. Dollar Index weakened following disappointing labor data. Initial Jobless Claims rose from 217K to 223K, exceeding expectations of 221K and signaling continued labor market weakness. Treasury yields also declined after Trump called for immediate interest rate cuts, arguing that both domestic and global rates should be lowered. However, the upcoming Federal Reserve meeting remains in focus as traders assess whether the central bank will maintain its independence.

The Dollar Index is trading lower while currently testing the support level. MACD has illustrated diminishing bullish momentum, while RSI is at 34, suggesting the index might extend its losses after breakout since the RSI stays below the midline.

Resistance level: 109.00, 110.00

Support level: 107.80, 106.80

XAU/USD, H4

Gold prices extended their rally, rising over 0.5% in the last session to reach a fresh high, reinforcing a bullish outlook. The metal's gains were fueled by a softened U.S. dollar following Trump's speech at the World Economic Forum. His push to lower oil prices as part of efforts to control inflation has raised expectations for a more dovish Federal Reserve monetary policy, further weakening the dollar and supporting gold's upward momentum.

Gold prices reached a new high after finding support at its short-term support level at near the $2745 mark, suggesting a bullish bias for gold. The RSI has been hovering close to the overbought zone while the MACD has been flowing at the elevated level, suggesting that the bullish momentum remains strong.

Resistance level: 2789.00, 2830.00

Support level: 2745.00, 2718.35

USD/JPY, H4:

Despite a minor technical correction, the USD/JPY pair has found support and continues to trade above its long-term uptrend support level, maintaining a bullish bias. Traders are closely watching the Bank of Japan's (BoJ) interest rate decision scheduled for today, with a 25 basis point hike already priced in by the market. However, attention will also be on the BoJ's accompanying monetary policy meeting, as any insights into future policy directions could significantly impact the Japanese Yen's movement and the pair's trajectory.

USD/JPY has seemingly found support after a technical correction from its weekly high, suggesting a bullish bias for the pair. The RS has gotten above the 50 level, while the MACD is poised to break above the zero line, suggesting that the bearish momentum has vanished.

Resistance level: 157.30, 158.55

Support level: 155.15, 154.20

S&P 500, H4:

The S&P 500 reached an all-time high on Thursday, fueled by strong corporate earnings and Trumps Davos speech, where he reiterated calls for lower interest rates. Lower borrowing costs typically drive capital into equities, boosting sentiment. Additionally, Trump announced a multi-billion-dollar AI investment, further lifting tech stocks and reinforcing bullish market momentum.

S&P 500 is trading higher following the prior breakout of the previous resistance level. However, MACD has illustrated diminishing bullish momentum, while RSI is at 70, suggesting the index might enter overbought territory.

Resistance level: 6160.00, 6280.00

Support level: 6015.00, 5785.00