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USD/JPY Forecast: Oversold on the dark mood, will we see a bounce?

  • USD/JPY is struggling at the lowest levels since September.
  • The Fed and a government shutdown weigh ahead of the data.
  • The technical picture points to oversold conditions.

USD/JPY is trading in the low 111s, after hitting a low of 110.80, last seen in early September, more than three months ago. The safe-haven yen is attracting investors, and the USD is sold off.

The perfect storm for the pair stems from a slightly dovish Fed hike that weighs on the greenback while the central bank continues squeezing its balance sheet on "auto-pilot" thus hurting stocks and boosting the yen, a place of shelter in these kinds of storms.

Moreover, a government shutdown is still an option in the US. After lawmakers reached an accord to postpone decisions until February, President Donald Trump intervened, insisting on funding for the border wall. The last-minute move could trigger the closure of services in the world's No. 1 economy and further uncertainty. 

In China, the world's second-largest economy, reports are coming out of stimulus measures to boost activity amid a slowdown. However, the news fails to improve the mood.

The mood is darkening as winter officially begins in the northern hemisphere. 

A significant chunk of US data is due later. Q3 GDP will likely be confirmed at 3.5% annualized growth albeit with a large contribution of volatile inventories. Durable Goods Orders for November are projected to advance, and the so is the Core PCE, the Fed's preferred inflation gauge.

See: US Durable Goods and GDP Preview: Spending returns to trend, GDP steady

USD/JPY is set to keep an open eye to political developments about the shutdown and also follow stocks, as it has done in recent days.

USD/JPY Technical Analysis - Oversold

USD/JPY Technical Analysis December 21 2018

The Relative Strength Index (RSI) is around 25 at the time of writing, clearly suffering oversold conditions, below 30. The pair fell fast.

The recent low of 110.80 is the first downside level to watch. 110.40 provided support back in September. It is followed by the very round number of 110 and the swing low of 109.70 seen earlier this year.

111.45 capped the pair in today's recovery attempts and almost perfectly coincides with 110.40 seen in late October. 112.20 was a double bottom until it gave ground. 112.65 was a high point before the most recent slide.

Author

Yohay Elam

Yohay Elam

FXStreet

Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.

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