USD/JPY Forecast: Mounting trouble to find a direction amid mounting troubles in the world
|- The USD/JPY moved slightly lower amid trade and other global concerns.
- US inflation, retail sales, and trade stand out in the second week of September.
- The charts show a mixed picture for the pair and the FX Poll shows a mixed picture as well.
This was the week: Trade, EM, and more
There were no new adverse developments in Emerging Markets. Argentina is trying to find a solution and Turkey may finally decide to raise interest rates in the upcoming week. The concerns were not as dominant as previously.
The US is set to announce its decision on new tariffs on China, on potentially $200 billion of Chinese goods, double the recent duties the world's largest economy had already imposed on the world's second-largest one. The deadline for receiving public comments has come and gone. At the time of writing, markets are still waiting.
More: Trade wars: $200 billion is serious, 3 scenarios and currency reactions for the upcoming escalation
Brexit had an impact on global markets once again as the week began with fears and improved later on. The USD/JPY sees only a small portion of the price action in Pound crosses.
US data was upbeat. The NFP report showed an impressive increase in wages: 0.4% MoM, double the early expectations, and 2.9% YoY. Job growth was back to normal levels with 201,000. The publication sent the greenback higher across the board as chances for a fourth rate hike in December have risen. A September hike was already a done deal.
US events: Inflation, retail sales, and watch trade as always
The week begins with markets digesting the Non-Farm Payrolls report and the latest trade developments. Wednesday features the Producer Price Index (PPI) which serves as a warmup to consumer inflation figures later on. The Fed's Beige Book will likely report steadfast economic activity.
The Consumer Price Index (CPI) is the primary event on Thursday. Core CPI, which excludes volatile items such as energy and food reached an annual level of 2.4% in July. Another acceleration in this crucial measure is unlikely for August. While the Fed follows an alternative measure, the Core PCE, the Core CPI is released earlier in the month. A small deceleration in inflation is unlikely to stop the Federal Reserve from raising interest rates in September.
Friday features an even more important economic indicator: the Retail Sales report. The American economy is centered around consumption and any change in sales makes a substantial impact on the broader economy. The report for July was quite upbeat with headline sales increasing by 0.5%, core sales by 0.6% and the control group by 0.5%. The control group tends to have the most significant impact on price action in the markets.
The last word of the week belongs to the preliminary version of the University of Michigan's Consumer Sentiment survey for September. There has recently been a divergence between the Conference Board's measure, the best since November 2000, and the figure from UoM for the same month, that ticked down. We will see where the wind is blowing now.
Here are the top US events as they appear on the forex calendar:
Japan: Not such a safe safe-haven
The Japanese Yen does not behave as the ultimate safe-haven anymore. In many cases, fear pushes the US Dollar across the board, also against the Yen. However, there is a better correlation with US 10-year bond yields and also with stock markets.
The Bank of Japan is unlikely to change its policy anytime soon, and without fresh inflation figures, Japanese data continues having little impact on markets. Nevertheless, updated GDP numbers early in the week and Foreign Investment in both bonds and stocks are of interest.
Here are the events lined up in Japan:
USD/JPY Technical Analysis
The USD/JPY continues looking for a new direction. The Relative Strength Index on the daily chart is balanced around 50. Momentum is flat, and the pair trades between the 50 and 200 Simple Moving Averages. The ranges have been narrowing, as demonstrated by downtrend resistance and uptrend support.
110.55 provides support in mid-July and was recently breached. It is a weak support line. 110.10 is a more significant level after serving as a swing low in early August. The most important level to the downside is 109.80, the trough in mid-August and the lowest level since the pair hit 109.40 in late June. 108.80 and 108.10 are next down the line.
111.45 capped the USD/JPY on two occasions in August. 111.85 held the pair down in late August and a second approach to the line failed. 1112.15 was a peak in early August and 113.15, the high point in July, towers above.
USD/JPY Sentiment
The US Dollar may continue rising on trade and the Fed, but it may have a slightly harder time against the Japanese. As mentioned earlier, the safe-haven status is fading away, but a wobble in stock markets could keep the pair from gaining ground.
The FXStreet forex poll of experts shows a bearish tendency in the near term, and bullish ones afterward. The average levels projected for the pair have not experienced significant changes from last week's forecast. The pair remains stable.
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