USD/JPY Forecast: Relief rally likely as focus may shift to Trump’s foreign visits

USD/JPY suffered sharp losses following the breach of key trend line support on 112.12 as discussed in yesterday’s report. The sell-off was extended to a low of 110.51 (23.6% Fib retracement of 108.13 - 114.36) in the Asian session today before a technical recovery saw the pair jump to 111.23. The spot was last seen trading around 111.00 levels.

The 10-year treasury yield fell dropped from 2.30% to 2.212% and was last seen hovering around 2.235%.

It was all about the political turmoil in Washington. The White House is in a mess and as House Oversight Chairman Chaffetz said, “The Russia probe could go on for years”. Things aren’t going to settle any time soon and the fallout of the turmoil would be that much awaited fiscal reforms would be delayed.

Moreover, politicians usually engage in the “attention diverting” effort when under fire. So we might see increasing chatter by the Trump administration about tax plan and other reforms, although it may not calm markets as the “talk is cheap and tweets are cheaper... Than Ever”!

Still, things may settle down, at least for the short-term as the focus is likely to shift to Trump’s foreign visit. President Trump is set to visit Saudi Arabia later this week. He is also scheduled to visit Israel and Palestine. The next destination would be Rome and the Vatican.

The Dollar-Yen pair is oversold as per the RSI on the 4-hour chart. That goes will the face that the political turmoil may be put on the back burner in the short-run.

June Fed rate hike bets stand at 64%

The political uncertainty has certainly taken a toll on the odds of the June Fed rate hike bets. The probability stood at 90% last week and currently stands at 64%. Watch for a moderate rebound in the Fed rate hike bets if the focus shifts to Trump’s foreign visits.  The USD may take another beating if the rate hike odds drop below 60%.

Technicals - oversold RSI on the 4-hour and 1-hour chart

Daily chart

4-hour chart

Resistance

111.28 (23.6% Fib R of 113.735-110.52

111.60 (Feb low)

112.13 (50% Fib R of 113.735-110.52)

Support

110.52 (previous day’s low)

110.00 (zero figure)

109.60 (76.4% Fib R of 108.13 - 114.37)

• The daily RSI has turned bearish, which suggests the upticks could be met with fresh offers.
• Nevertheless, the oversold nature of the 1-hour RSI and 4-hour RSI could yield a revisit to 111.60.
• Only a daily close above 111.60 would signal bullish invalidation.