Fundamental Analysis advice.

[niczg]

Hi everyone.

I hope youre all enjoying youre December.

I wanted to ask for advice about fundamental analysis since im new to fundamental analysis and I mainly rely on technical analysis.

.
My question is why did USD/JPY create this huge downtrend during November and December right now?
.

So this is my theory why USD/JPY was so bearish below.

USA had a inflation rate of 3.2% in October, therefore, since USA was super close to its inflation target of 2%, there was no need at all to hike interest rates since USA was already so close to its inflation target of 2%. Which means USA are most likely to hold interest rates instead.

Also Japan had a inflation rate of 3.3%, which means that Japan did not need to hike rates because Japan is also very close to its inflation target of 2% which means Bank of Japan will most likely hold interest rates.

Therefore, since both USA and Japan were close to its inflation target of 2% in October, it means that USA and Japan will most likely hold interest rates, which created a huge downtrend throughout November and December.

 

[burnout]

I'm not a FOREX trader (tried and failed at that, like, a decade ago), but let me tell you what I've observed anyway...

The USD is the absolute King of all currencies. The worldwide standard to which all other currencies are usually compared against. In this case, the USD got weaker during that timeframe you selected so it was exchangable for less Japanese Yen as a result of that. But why did the USD weaken? Well, it has been my observation that the USD is still, primarily, used as the instrument for the "flight to safety" moves. So when the largest stock market in the world tanks (the USA markets, of course) then the Dollar gets stronger and vice-versa when the market flies. You can readily see this for yourself when you do a comparison of any significant moves of the stock market vs the dollar strength.

Here is a picture of the S&P500TR move from the same time period: (stock market got stronger, dollar got weaker).

As a swing trader who's based in a foreign country to the USA, I actually quite appreciate this phenomenon because it aids in reducing the volatility of my portfolio. I.e. USA market tanks, but the CAD value of my USD holdings just increased as a direct result of that - thereby, offsetting some of those market losses to a small extent.

Not sure how you might be able to use this for your FOREX trades, just thought it was a relevant bit of info here as to why that probably happened.

 

[1nvest]

Hi everyone.

I hope youre all enjoying youre December.

I wanted to ask for advice about fundamental analysis since im new to fundamental analysis and I mainly rely on technical analysis.

.
My question is why did USD/JPY create this huge downtrend during November and December right now?
.

So this is my theory why USD/JPY was so bearish below.

USA had a inflation rate of 3.2% in October, therefore, since USA was super close to its inflation target of 2%, there was no need at all to hike interest rates since USA was already so close to its inflation target of 2%. Which means USA are most likely to hold interest rates instead.

Also Japan had a inflation rate of 3.3%, which means that Japan did not need to hike rates because Japan is also very close to its inflation target of 2% which means Bank of Japan will most likely hold interest rates.

Therefore, since both USA and Japan were close to its inflation target of 2% in October, it means that USA and Japan will most likely hold interest rates, which created a huge downtrend throughout November and December.

Hi Niczg, there's a couple of points you've mentioned which are not quite right..
USA are not hiking rates because they are "close" to their inflation target. They are not hiking rates because they have been raising them since 2022 and the measures they have taken through interest rates are having the right effect, and leaving them alone they feel is the right option. ie they are coming down. their target is still 2%. being close has nothing to do with it.
Thats not the same at all for the Bank of Japan. BOJ have done nothing with their interest rates for over 6 months, not because they are close, its just they have decided not to have been so tight with their policies as the US have done. as a result of this lack of tightening, and the fact that they are still off from their targets, BOJ have recently indicated they may increase their rates, as inflation is not going where they want it to.
so, US is likely to leave as is/reduce interest rates. BOJ are likely to increase
quite different scenarios.

nonetheless, nothing above still explains why there was a drop in November. and this is where i think you are barking up the wrong tree.
since 2021 the USD/JPY has been in an uptrend. there was a dop in November by 15% and it has continued on its uptrend. Fundamentally, what has changed? nothing. its still on its uptrend. trying to use fundamental analysis for a short term price swing is counterintuitive given that fundamental analysis is looking at just that, the fundamentals
why not go back in history and look at all the price swings, which happen very frequently, how are you going to explain all of those price swings..it cant be inflation and interest rate changes every time.
hopefully what im saying makes sense. im not a fundamentalist. im long term, but even fundamental analysis makes me seem like a swing trader by comparison

 

[MattK]

Hi Niczg, there's a couple of points you've mentioned which are not quite right..
USA are not hiking rates because they are "close" to their inflation target. They are not hiking rates because they have been raising them since 2022 and the measures they have taken through interest rates are having the right effect, and leaving them alone they feel is the right option. ie they are coming down. their target is still 2%. being close has nothing to do with it.
Thats not the same at all for the Bank of Japan. BOJ have done nothing with their interest rates for over 6 months, not because they are close, its just they have decided not to have been so tight with their policies as the US have done. as a result of this lack of tightening, and the fact that they are still off from their targets, BOJ have recently indicated they may increase their rates, as inflation is not going where they want it to.
so, US is likely to leave as is/reduce interest rates. BOJ are likely to increase
quite different scenarios.

nonetheless, nothing above still explains why there was a drop in November. and this is where i think you are barking up the wrong tree.
since 2021 the USD/JPY has been in an uptrend. there was a dop in November by 15% and it has continued on its uptrend. Fundamentally, what has changed? nothing. its still on its uptrend. trying to use fundamental analysis for a short term price swing is counterintuitive given that fundamental analysis is looking at just that, the fundamentals
why not go back in history and look at all the price swings, which happen very frequently, how are you going to explain all of those price swings..it cant be inflation and interest rate changes every time.
hopefully what im saying makes sense. im not a fundamentalist. im long term, but even fundamental analysis makes me seem like a swing trader by comparison

What do you think, what other factors besides interest rates and inflation affect the USD/JPY exchange rate?

 

[1nvest]

What do you think, what other factors besides interest rates and inflation affect the USD/JPY exchange rate?

The usual suspects I would say, which affect any currency..other than inflation and interest rates
political and economic stability, recession, govt debt ratings, trade agreements, changes to monetary policy (ie printing money), sentiment(outlook), correlation with equity and bond markets
speculation on any of the above..ie fear of recession, fear of political stability, fear of war etc etc and lastly
quite simply, supply and demand
whats your view, honestly i know next to nothing about foreign exchange markets

 

[MattK]

The usual suspects I would say, which affect any currency..other than inflation and interest rates
political and economic stability, recession, govt debt ratings, trade agreements, changes to monetary policy (ie printing money), sentiment(outlook), correlation with equity and bond markets
speculation on any of the above..ie fear of recession, fear of political stability, fear of war etc etc and lastly
quite simply, supply and demand
whats your view, honestly i know next to nothing about foreign exchange markets

I believe politics has the most significant influence this year, and I expect the same for next year