USD/JPY Forecast: Potential up move faces resistance at 55-day SMA just above 109.00

  • USD/JPY looks to extend the rebound from weekly lows in sub-108.00 levels recorded on Thursday.
  • The greenback remains under pressure as speculations of a 50 bps rate cut stay unabated for the time being.
  • June’s Producer Prices are due next. A positive surprise could help sentiment after recent auspicious CPI prints.

The pair has managed to regain some shine in the last couple of weeks after bottoming out in the sub-107.00 area in late June, posting subsequent weekly gains since then but with the upside so far capped around the 109.00 neighbourhood, home of the 55-day SMA.

The recovery in yields of the US 10-year note from as low as the 1.94% region has been sustaining the squeeze higher in USD/JPY, although a clear trend in either direction is still absent, fuelling the view of extra consolidation in the near term at least.

In the meantime, the greenback is expected to stay under the markets’ scrutiny in light of the recent confirmation by Chief Powell and the FOMC minutes that a potential easing cycle by the Federal Reserve is in the offing. Supporting this view, a 25 bps interest rate cut is already priced in, but speculations of a larger cut, say 50 bps, are still lingering.

On the JPY-side, there is no news in the hood, as the BoJ is seen sticking to its QQE programme for the foreseeable future. However, the Japanese safe haven is expected to face bouts of volatility always stemming from the up & downs in developments from the US-China trade front and their incidence on the broader risk appetite trends.

On the technical perspective, USD/JPY faces initial resistance in the 109.00 neighbourhood, where coincide so far monthly tops, the 55-day SMA and a Fibo retracement of the April-June drop. Further up emerges another Fibo retracement at 109.59 ahead of late May peaks near 110.70 and the key 200-day SMA at 110.80. On the downside, the 107.80 region (June 5/July 11 lows) should offer interim contention ahead of the more relevant 106.78 level recorded on June 25.

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