USD/JPY rate forecast: More trouble to come for the Japanese yen?

USD/JPY ANALYSIS

  • Will Fed Chair Powell continue his hawkish rhetoric?
  • US economic data on hold as global slowdown worries mount.
  • 145.00 in sight for USD/JPY bulls?

GENERAL BACKGROUND OF THE JAPANESE YEN

The Japanese yen had a tough time last week and is heading into the week weaker overall due to aggressive comments by Fed Chair Jerome Powell and a drop in Japan’s consumer price index on Friday. Falling inflation will make it harder for the Bank of Japan (BOJ) to deviate from its ultra-loose monetary policy, but changes in yield curve control (YCC) are still possible.

Next week’s schedule is dominated by US data (see economic calendar below), including the core PCE data set, the Fed’s preferred inflation measure. Mr Powell will deliver another speech and is likely to tighten monetary policy further rather than hold rates steady as the money market probability gets closer and closer to the targeted 25 basis point hike in July. Other important releases include new orders for durable goods, GDP and Michigan consumer sentiment, which will provide a clearer picture of the US economy in general. Should the data point to a slowdown in the economy, recession fears could creep back in and play into the hands of the safe-haven yen.

ECONOMIC CALENDAR (GMT +02:00)

Source: DailyFX Economic Calendar

TECHNICAL ANALYSIS

USD/JPY DAILY CHART

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Diagram created by Warren VenketasI G

USD/JPY shows that the price movement followed the signal of the golden cross (green) and reached new highs for 2023. While the pair is in the overbought zone as indicated by the Relative Strength Index (RSI), it could continue to move towards the psychological 145.00 level before moving downwards again.

Important resistance levels:

Important support levels:

IG CUSTOMER SENTIMENT: BULLISH

IGCS shows that retail traders are currently net SHORT on USD/JPY, with 72% of traders currently holding short positions (at the time of writing).

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