USD/JPY Forecast: Bearish lean, eyes Fed minutes

Omkar Godbole FXStreet Contributor

The Dollar-Yen pair dropped to a low of 111.99 yesterday as the bid tone around the USD weakened on fears that Trump's tax reform plan could be hitting a major speed bump. However, by day's end, the pair had recovered to 112.44.

The uptick in EUR/JPY on the easing of Catalan fears seems to have lifted the Dollar-Yen pair from the low of 111.99. Catalan leader Carles Puigdemont suspended the results of the referendum and opened doors for talks with Madrid government.

Prepping for a breakdown?

Rise in Inflation expectations has stalled

Fed's Kaplan was on the wires in the Asian session today, stating that the Fed would want to see more evidence of progress in inflation for further (3 rate hikes in 2018) rate hikes.

There is evidence of a slowdown in inflation expectations. For example - The 5 year, 5 years, forward inflation expectation rate currently stands at 1.96; well below the recent high of 2.03. The inflation expectations chart seen below shows the recovery from the June low of 1.78 has run out of steam. This is bad news for the USD bulls.

US 10-yr yield remains below 2.4%

The rally in the US 10-year yield from 2.016% (Sep 8 low) appears to have run out of steam at the critical resistance of 2.4%. The first attempt to take out 2.4% on Oct 6 failed. Since then, the yield has struggled to near 2.4%.

Dec rate hike priced-in to a large extent

The probability of the December rate hike stands at 91%. Over the last one month, the USD index has strengthened from 91.99 to 94.10, which suggests the markets have priced in the December move to a large extent.

Technical exhaustion

The repeated rejection at 113.00 levels has left a nice rounding top pattern on the daily chart.

Daily chart

The spot looks set to test 111.84 (the 200-DMA) and possibly extend losses to 111.47-111.00 levels.
On the higher side, only two consecutive day's end closes above 113.00 would revive the rally from the September 8 low of 107.32 and shall open doors for 115.00

Will the Fed minutes lift the USD/JPY pair above 113.00?

The 10-year treasury yield could break above 2.4%, pushing the USD/JPY beyond the 113.00 hurdle if-

The minutes show strong backing for three rate hikes in 2018

As noted earlier, the December rate hike has been priced in to a large extent. Thus, only strong backing for three rate hikes in 2018 could yield two consecutive day's end closes above 113.00 levels.

Author

Omkar Godbole

FXStreet Contributor

Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.

EUR/USD hovers around nine-day EMA above 1.1800

EUR/USD remains in the positive territory after registering modest gains in the previous session, trading around 1.1820 during the Asian hours on Monday. The 14-day Relative Strength Index momentum indicator at 54 is edging higher, signaling improving momentum. RSI near mid-50s keeps momentum balanced. A sustained push above 60 would firm bullish control.

GBP/USD holds medium-term bullish bias above 1.3600

The GBP/USD pair trades on a softer note around 1.3605 during the early European session on Monday. Growing expectation of the Bank of England’s interest-rate cut weighs on the Pound Sterling against the Greenback.

Gold sticks to gains above $5,000 as China's buying and Fed rate-cut bets drive demand

Gold surges past the $5,000 psychological mark during the Asian session on Monday in reaction to the weekend data, showing that the People's Bank of China extended its buying spree for a 15th month in January. Moreover, dovish US Federal Reserve expectations and concerns about the central bank's independence drag the US Dollar lower for the second straight day, providing an additional boost to the non-yielding yellow metal.

Bitcoin, Ethereum and Ripple consolidate after massive sell-off

Weekly column: Saturn-Neptune and the end of the Dollar’s 15-year bull cycle

Tariffs are not only inflationary for a nation but also risk undermining the trust and credibility that go hand in hand with the responsibility of being the leading nation in the free world and controlling the world’s reserve currency.

Bitcoin, Ethereum and Ripple consolidate after massive sell-off

Bitcoin, Ethereum, and Ripple prices consolidated on Monday after correcting by nearly 9%, 8%, and 10% in the previous week, respectively. BTC is hovering around $70,000, while ETH and XRP are facing rejection at key levels. Traders should be cautious: despite recent stabilization, upside recovery for these top three cryptocurrencies is capped as the broader trend remains bearish.