USD/JPY falls to the abyss – can it recover? Forecast February 19-23

Dollar/yen endured yet another week of deep falls, eventually breaking below the September trough and reaching the lowest levels since November 2016. The dollar’s weakness was the main driver and talk of an intervention help stabilize the losses. The pair now faces more central bank speak.

USD/JPY fundamental movers
Dollar roller coaster, BOJ jawboning

The US inflation report came out better than expected, sending the pair lower on safe-haven flows toward the yen. When stocks turned around, the dollar continued falling. It was a lose-lose situation. The greenback finally turned higher on Friday, partly due to the warnings of Japanese officials about the exchange rate. After initially being reluctant to comment on the yen, it seems that the authorities are becoming more worried now.

In addition, Parliament nominated Governor Haruhiko Kuroda for a second term after some uncertainty. His dovish policies sent the yen lower in recent years.

The Fed is in focus

The FOMC Meeting Minutes may shed some light on the last meeting ran by Janet Yellen. The statement that was released on January 31st included somewhat more hawkish tones and we will now learn more about the way of thought at the Fed. In addition, quite a few Fed officials will speak out, most notably Dudley and Mester. They will all have the opportunity to react to the latest inflation figures.

In Japan, we will get inflation data, but perhaps the most important news will come from commentary by the Ministry of Finance and the BOJ regarding the exchange rate.

See all the main events in the Forex Weekly Outlook

Key news updates for USD/JPY
Updates:

USD/JPY Technical Analysis

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. The round number of 110 serves as a psychological level.

109 was a pivotal line within the range. 108.30 was the low seen in late January. Even lower, we find 107.30 was the low in September and now turns into resistance.

106.50 was a resistance line in mid-February. The 105.55 low is the next line to watch, serving as a low point around the same time.

If the pair falls even lower, the round number of 105 will come into play, followed by 103.30.

USD/JPY Daily Chart

USD/JPY Sentiment

I remain bearish on USD/JPY

The recovery in stocks may not be the end of market jitters. Another fall could come soon. In addition, intervention may have a limited effect, whether it be verbal or real.

Our latest podcast is titled When everything sells off, where is the money going to?

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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