USD/JPY Forecast: Moved up with stocks, but has it gone too far?
|- The USD/JPY ticked up amid the US elections and the Fed decision.
- US inflation and retail sales stand out in the upcoming week.
- The technical picture looks bullish and so does the FX Poll for the upcoming week. Experts turn bearish later on.
This was the week: USD still looking good after the Mid-Terms and the Fed
Democrats flipped the House while Republicans retained the Senate, as broadly expected. During 2018, the US Dollar enjoyed Trump's policies and the prospects of a divided government initially triggered some safe-haven flows into the Yen. However, as stocks reacted positively, the USD/JPY lifted its head once again.
The Fed left interest rates unchanged as expected and is on course to raise them in December, making it the fourth hike in 2018. While the FOMC Statement included a downgrade regarding the assessment of business investment, the Fed remains hawkish. The greenback advanced against many currencies but struggled to extend its gains against the safe-haven yen.
US data was mostly positive with the ISM Non-Manufacturing PMI remaining above 60 points.
Bank of Japan Governor Haruhiko Kuroda stayed optimistic about reaching the inflation target despite low inflation.
US events: Consumption and consumer prices
After a bank holiday on Monday, Tuesday's budget statement will be of interest, as America's debt is ballooning.
The first top-tier release of the week is on Wednesday with the inflation report. The Core Consumer Price Index fell short of expectations in September's report by remaining at 2.2% YoY. No change is expected in October. However, headline CPI is projected to accelerate from 2.3% to 2.4%. The Fed has two mandates: employment and inflation, with the latter lagging behind the former.
The second top-tier release is on Thursday. Results were mixed in September as headline sales hardly moved, core sales dropped, but the control group rose by a healthy 0.5%. All three figures carry expectations for substantial increases.
It is also worth keeping an eye open to political developments after the Mid-Terms ended. The Mueller investigation has been quiet ahead of the vote, but fresh indictments cannot be ruled out. Trump's firing of Attorney General Jeff Sessions opens the door to firing Mueller. Political instability may weigh on markets.
Here are the top US events as they appear on the forex calendar:
Japan: Preliminary GDP and also watch North Korea
The Japanese yen remains the ultimate safe-haven currency. It attracts buyers when equity markets fall and sellers when stocks are sought after. Stocks remain in the driver's seat.
As a safe-haven currency, the yen is also sensitive to developments around North Korea. An announcement of the second summit between Trump and North Korean Leader Kim Jong-un may weigh on the Japanese currency while a further deterioration in talks could send it higher.
Japan publishes fresh GDP data for the third quarter. The economy enjoyed an impressive growth rate of 0.7% QoQ or 3% annualized in Q2. A "payback" quarter is on the cards for Q3 with a drop in the economy's output. Also, investment figures are of interest later in the week.
Here are the events lined up in Japan:
USD/JPY Technical Analysis
The USD/JPY is trading alongside a steep uptrend support line. Looking back to September, the scene was quite similar. Back then, the pair hit a high of 114.55 before tumbling down. Is this time different? So far, the USD/JPY did not reach overbought conditions: the Relative Strength Index (RSI) is below 70. Momentum remains to the upside while dollar/yen holds above both the 50-day and the 200-day Simple Moving Averages. All in all, the technical picture is bullish.
114.10 capped the pair recently and also in September when the pair later reached higher ground. 114.55 was the high point in 2018 recorded in early October. Further up, 115.00 is a very round number and 115.50 served as resistance in late 2017.
113.40 was a swing high in late October. The round number of 113.00 was a swing low before the recent advance. 112.55 provided support in late October and also separated ranges in September. 111.00 was a stubborn resistance line in August and also in early October.
USD/JPY Sentiment
The FXStreet forex poll of experts shows a bullish bias for the upcoming week but a bearish twist afterward. The forecasts have been upgraded in comparison to the previous forecast, but the changes are limited.
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