USD/JPY Forecast: Critical support at 111.25
|USD/JPY Current Price: 111.53
- Japan’s data reinforces the belief the economy is heading into a technical recession.
- High-yielding assets under pressure amid coronavirus possible effects on economic growth.
- USD/JPY at risk of extending its decline in the short-term, bearish below 111.25.
The USD/JPY pair has retreated in the last trading day of the week to finish it at around 111.50, still the highest weekly close since April 2019. The slump had to do with easing dollar’s demand amid profit-taking ahead of the weekend and fueled by dismal US data. Supporting the picture, global indexes closed in the red, while government debt yields collapsed. The US 30-year Treasury note fell to 1.89% a record low, as possible coronavirus effects on economic growth maintained the mood depressed.
Japanese data released on Friday failed to impress, as January National CP came in as expected at 0.7% YoY, although the core reading, which excludes volatile prices such as fresh food and energy prices, resulted in 0.8% below the previous and the expected 0.9%. Also, the preliminary estimate for the February Jibun Bank Manufacturing PMI printed at 47.6, missing the expected bounce to 49. The December All Industry Activity Index was unchanged, worse than the previous 0.9%. The figures reinforced the belief that the Japanese economy is heading into a technical recession. The country celebrates a holiday this Monday, and there won’t be macroeconomic publications.
USD/JPY short-term technical outlook
The USD/JPY pair has corrected extreme overbought conditions in the daily chart, although it retains its bullish stance. Technical indicators eased but remain far above their midlines while moving averages head higher far below the current level. The 4-hour chart shows that the decline will face significant support at 111.30, where the pair has the 38.2% retracement of its latest bullish run and a bullish 20 SMA. Technical indicators head sharply lower, still above their midlines, anyway suggesting at least a test of the mentioned support level.
Support levels: 111.25 110.90 110.50
Resistance levels: 112.00 112.40 112.70
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