Dollar/yen started off the new fiscal year by extending its gains and moving higher. The optimism about a deal in the Korean peninsula, some optimism from Powell and a rise in US wages beat the fears of a trade war, at least for now. Can it continue?
USD/JPY fundamental movers
US wages rise, Powell sounds optimistic
While the US gained only 103K jobs in March, wages moved higher with an annual rise of 2.7%. Fed Chair Jerome Powell seems set to raise interest rates and did not mention the growing tension between the US and China. John Williams, which was nominated to the New York Fed, is also sounding upbeat but he did mention it.
China announced retaliatory tariffs on the US, countering the ones worth $50 billion. Later, Trump tweeted that he will slap additional tariffs worth $100. It is unclear if the sides are talking behind the scenes. The moves caused jitters in stocks but did not prevent the Japanese yen from losing ground.
FOMC Minutes, inflation
The Fed will release the meeting minutes from Jerome Powell’s first meeting as Fed Chair. The FOMC raised rates but left the outlook for 2018 unchanged. Is the central bank leaning towards four hikes this year or is still cautious? This will be the focus of the minutes.
One of the barriers to hiking is the lack of meaningful inflation. Apart from the minutes, the PPI and the CPI data will be of high interest. Core CPI is stuck at 1.8% for a long time.
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Key news updates for USD/JPY
USD/JPY Technical Analysis
We start from 110.70 that 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 107.50 capped the pair in early April and is a strong line.
106.50 was a resistance line in mid-February. and then resistance in early March. 105.55 was the first swing low.
The 105.25 low is the next line to watch, serving as a low point around the same time. The new low of 104.60 is the next level to watch. Below this, 103.10 is an old level from 2016.
The pair broke out of the downtrend channel that characterized its trading for a few weeks and it now trading in an upward channel as demonstrated on the chart.
USD/JPY Daily Chart
I am neutral on USD/JPY
The pair managed to make a meaningful recovery and is looking for a new direction. Worsening trade relations between China and the US may push it lower, but assuming no disaster for now, we may see it consolidating the recent move.
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