Will the USDJPY Hold Above 100.00 in the Week Ahead?

Key Points:

• Japanese CPI y/y forecast at -0.5% y/y

• 100.00 handle forming as key battleground.

• Watch for US Michigan Consumer Sentiment figures.

Last week continued the slide for the USDJPY as the pair reacted negatively to the US Federal Reserve’s dovish decision on rates. The pair was largely in freefall following the decision which saw it close the week out around the 100.87 mark. Subsequently, it is sensible to review the week ahead given that it is very likely to determine if the pair can hold above the key 100.00 handle.

Last week proved highly negative for the embattled USD/JPY as the pair reacted in a volatile manner to the Federal Reserve’s decision to keep interest rates dovishly on hold at 0.50%. Subsequently, the pair swung sharply but ultimately charged below 100.00 before regaining the key handle to close the week around the 100.87 mark. In addition, the Bank of Japan also surprised markets by suggesting that their monetary policy will target the yield curve rather than focusing upon inflation. Subsequently, this was seen largely as a positive development given the diminishing marginal returns of the current stimulus program.

The week ahead could be defining for the pair as plenty of macroeconomic data is still waiting in the wings to be released. In particular, the Japanese CPI figures are due out on Thursday and are likely to be relatively important given the role that the BOJ played in last week’s volatility. In addition, the US Michigan Consumer Sentiment data will also be critical in gauging the near term trend of the US economy. Subsequently, expect to see some swings from the above data points, especially if there is a sharp deviation from forecasts.

From a technical perspective, price action remains under pressure as the 12 and 50 EMA’s continue to trend lower. However, given the pair’s recent bounce above the 100.00 reversal zone our initial bias for the week ahead remains neutral. However, do note that the pair is still contained within a medium term falling channel and capped by the 55EMA. Support is currently in place for the pair at 100.66, 99.92.66, and 98.98. Resistance exists on the upside at 104.16, 107.47, and 110.16.

Ultimately, the direction in the week ahead is likely to come down to both the JPY CPI and Michigan Consumer Sentiment figures. The latter is likely to be an important metric to watch given that we are all largely still struggling to come to terms with the divide between the US Fed’s rhetoric and their actions (or lack of it!).