USD/JPY falls back to range – Forecast Dec. 18-22 2017

Dollar/yen just cannot stay on high ground, nor make a break to the upside. The pair suffered from a few negative events related to the dollar and could not take advantage of the positive news. The last full week of trading before the holidays sees quite a few important events in politics and in economic indicators.

USD/JPY fundamental movers
Fed dissent vs. tax bill

The US Congress is inching closer to approving a tax bill. After the passage in the Senate, members of the House are reconciling their own bill with the one in the Senate. Despite a defeat in Alabama, Republicans are likely to pass the bill. A beat in the retail sales report for November also helped the greenback.

On the negative side, core inflation is stuck at 1.7% and this is worrying. It was worrying enough for an additional FOMC voter to dissent and vote against the rate hike. While the Fed is still on course to hike three times in 2018, things may change if inflation remains low. The next moves are in the court of the incoming Fed Chair Jay Powell.

In Japan, the Tankan manufacturing index came out at 25, a small beat on early forecasts. In addition, PPI and core machinery orders also point to upbeat growth. This may have given the yen another small boost.

US GDP, durable goods orders, BOJ decision

Just before Christmas, we will get some last minute top-tier figures. The US will release the third and final read of GDP for Q3. In addition, durable goods orders for November will provide an insight into Q4. The Fed’s favourite inflation measure is set to remind us that inflation is not going anywhere fast.

And in politics, Congress is predicted to vote on Tuesday on the tax bill and Trump could sign it soon thereafter. While it is mostly priced in, such a move could give a boost to the greenback.

In Japan, we have the last rate decision of the year, but don’t expect any fireworks. The really important BOJ meeting is only in April.

See all the main events in the Forex Weekly Outlook

Key news updates for USD/JPY
Updates:

USD/JPY Technical Analysis

115.35 is an old line that served as support when the pair traded on higher ground. 114.50 is the cycle high last seen in early July. The pair got close to that level.

113.70 was a separator of ranges in June and a line of resistance in December. It caps the range. 112.90 served as support in December and is a pivotal line in the range.

112.20 used to be important in the past. It is closely followed by 111.70, which provided support back in October. The round level of 111 worked as a cushion to the pair in November.

Looking down, 110.70 was a separator of ranges in June and remains important. 109.60 was a gap line in late April, a gap that was never closed.

In June, the pair found support several times at 109.10 and this also works as support. Further below, the cycle low of 108.10 is of high importance.

USD/JPY Daily Chart

USD/JPY Sentiment

I remain bearish on USD/JPY

The pair is still trading on high ground and could fall from here. The good news for the dollar is already priced in.

Our latest podcast is titled A December to remember for EUR/USD

Further reading:

  • EUR/USD forecast – for everything related to the euro.
  • GBP/USD forecast – Pound/dollar projections
  • AUD/USD forecast – analysis for the Aussie dollar.
  • USD/CAD forecast – Canadian dollar predictions

Safe trading!


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