USD/JPY turned quite bearish since late October after being extremely bullish earlier this year. Moving averages were acting as support, holding the decline for some time, but they were eventually broken and now they have turned into resistance, with the 50 SMA (yellow) rejecting the price yesterday after Jerome Powell’s comments yesterday.

On August 26, Powell said that “While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses”.  Contrast that with yesterday’s speech where he said, “we don’t want to overtighten” and that slowing rate hikes at this point makes sense. The USD turned lower immediately. losing around 150 pips across the board.

USD/JPY H4 Chart – Rejected at the 50 SMA

Sellers targeting the recent lows

Jerome Powell’s Speech

• Makes sense to moderate pace of interest rate hikes
• Time to moderate pace of rate hikes may come as soon as December
• Have made substantial progress toward sufficiently restrictive policy, have more ground to cover
• It seems to me likely rates must ultimately go somewhat higher than policymakers thought in September
• Likely to need to hold policy at restrictive level for some time
• History portions strongly against prematurely loosening policy
• We have a long way to go on restoring price stability
• We will stay the course until the job is done
• October inflation data was welcome a surprise; will take substantially more evidence to give comfort inflation is actually declining
• We estimate PC price index rose 6% in 12 months through October
• The path ahead for inflation remains highly uncertain
• Moderation in labor demand growth will be required to restore labor market balance
• So far seen only tentative signs of moderation in labor demand, wage growth
• Slowing down at this point is a good way to balance risks
• So far seen only tentative signs of moderation in labor demand, wage growth
• Jobs data today was more or less in line with expectations, decline in job openings a positive
• For most workers, wage increases are being offset by inflation
• Initial surge in inflation not related to wages
• Questions about the elasticity supply is an important one the Fed is thinking about
• Hard to pin down the natural rate of unemployment given disruptions
• Fed continues to think job openings versus number of unemployed is important
• It’s difficult to forecast inflation now given circumstances remain unusual
• Slowing down at this point is a good way to balance risks
• Still thinks there’s a path to a soft or soft-ish landing without a severe recession
• Soft landing scenario plausible but won’t speculate on odds
• One risk management tool is to go slower, one is to hold longer
• “I don’t want to overtighten”

USD/JPY Live Chart