USD/JPY Forecast: Riding the bullish uptrend channel, retail sales eyed
|- USD/JPY eventually hit new highs in a mixed week.
- US retail sales stand out ahead of Easter.
- The technical picture remains upbeat for the pair. Experts are bullish only in the short term.
This was the week: FOMC Minutes, consumer confidence
The Federal Reserve released the FOMC Meeting Minutes from the March decision. The minutes reiterated the patient stance on raising rates, and as James Bullard said, it represents the end of policy normalization. In addition, several members see interest rates going in either direction, opening the door to a rate cut. This is slightly dovish, but not a huge surprise.
Data did surprise but in both directions. Core inflation rose by only 0.1% MoM and 2.0% YoY, below expectations. The figures allow the Fed even more time to contemplate rate hikes.
A positive surprise came from weekly jobless claims which dropped to 196K, the lowest since 1969. It shows the resilience of the labor market.
Trade talks between the US and China continued, with both sides expressing optimism, as usual, but with no breakthrough announced. However, it seems that the US is ready to conclude talks with China, as President Donald Trump is already criticizing the European Union on its trade stance.
In Europe, leaders agreed to postpone Brexit by six months, to October 31st, Halloween. While the extension of Article 50 was on the cards, the approval of the move provided some relief for markets.
In Japan, Machinery orders rose by only 1.8%, lower than expected, strengthening the case for an ultra-loose monetary policy as reiterated by Bank of Japan Governor Haruhiko Kuroda.
All in all, markets have calmed down after several storms, and the upbeat atmosphere pushes the pair higher.
US events: Retail sales stand out
The week begins with Industrial Production for March which disappointed by remaining flat in February.
The trade balance release is of political importance, and later on Wednesday, the Fed's Beige Book will provide more data on the Fed's thinking.
The most significant publication is on Thursday, with the release of the Retail Sales report for March. The data comes out relatively shortly after the announcement for February, which was released late due to the government shutdown. Back in February, the data dropped and fell and disappointed. However, it came with an upgrade of January's data.
The most important figure, the Control Group, dropped by 0.2% in February and is projected to rise by 0.4% in March. A bounce is also on the cards for other data. Consumption is critical to the US economy, and the data will likely overshadow the weekly jobless claims and the Philly Fed Manufacturing Index for April.
Building Permits and Housing Starts tend to offset each other with one figure beating expectations and the other missing. Both need to go in the same direction for a significant impact.
It is important to note that trading volume will probably be shallow on Good Friday.
Here are the top US events as they appear on the forex calendar:
Japan: Fewer worries
The Japanese calendar features trade data early in the week, and Japan is expected to see another surplus. Industrial output is projected to fall once again in the report for February. Finally, inflation data for March on the national level is forecast to reflect the shortage of price pressures. Core prices are below 1% while the target is 2%.
The Japanese yen serves as a safe-haven currency and the can-kicking exercise around Brexit removes one positive driver of the yen. No new developments are expected. Talks between the US and China remain central to the risk sentiment, and any tweet by Trump can have a substantial impact. Another risk factor is North Korea as talks with the US are going nowhere fast.
USD/JPY traders need to follow stocks and bonds closely, as usual.
Here are the events lined up in Japan:
USD/JPY Technical Analysis
Dollar/yen is trading in an uptrend channel as seen by the thick black lines on the daily chart. With the more recent move, the pair crossed the 200-day Simple Moving Average, a bullish sign. Momentum is now positive, and the Relative Strength Index is pointing higher.
All in all, the technical picture is bullish.
112.50 was the high point in early March and significant resistance. 112.60 provided support when USD/JPY was trading on high ground back in December. 113.15 was a support line in late December, and 113.75 capped it around the same time. 114.00 is next.
111.50 held the pair down in early January and is where the 200-day SMA meets the price. 110.80 was a low point in mid-April, and 110.25 provided support in February and 109.75 was the low point in March. Further down, 109.10 and 108.50 are eyed.
USD/JPY Sentiment
USD/JPY takes two steps up, one step down. After ending the week on a positive note, the pair could decline. Retail sales hold the key. A significant breakthrough in US-Chinese talks is critical for the pair to extend its gains in the near term.
The FXStreet Poll shows a bullish trend in the short term, but a bearish one afterward with lower targets. The short term average target was upgraded while the medium term and the long term ones are mostly unchanged. It seems that the experts see the recent rise as short-lived.
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