USD/JPY Forecast: Rise in Jap trade deficit & a potential inverse Head & Shoulder


USD/JPY jumped to a high of 114.96 earlier last week, but the subsequent failure on the part of the 10-year treasury yield to hold above 2.5% took the wind out of the dollar bulls. The pair ended last week on a weak note at 112.92 levels. At the time of writing, the spot was trading around 112.88 levels. US markets are closed on account of President’s day.

The Japanese trade deficit widened on energy imports

Japan’s trade balance turned negative in January, as imports surged. Exports increased at an annualised 1.3% in January and imports rose 8.5%. Markets were expecting imports to print at 4.7%. The sharp rise was largely due to energy imports. Oil averaged $30/barrel a year ago. This year, prices have been stuck around $52… i.e. 73% higher than Jan/Feb 2016.

Thus, the surge in import and trade deficit should not come as a surprise, although it is bad news for the Japanese Yen. Moreover, Japan is energy dependent and hence oil positive event/news flow is bound to be Yen negative. Meanwhile, Lunar New Year holidays could have weighed over the export growth.

Key takeaways - Exports to US fell 6.6% this January (Heartening for Trump). Exports to the EU fell 5.6%, while those in China jumped 3.1%. Japanese total trade deficit rose to JPY 1,086.9 billion in January

A surge in the Japanese trade deficit had increased the odds of the USD/JPY bulls defending support around 112.50-112.40. A rebound from the said levels could led to inverse head and shoulder formation seen on the four hour chart below

4-hour chart

  • Inverse head and shoulder neckline is seen around 115.00 levels.

Daily chart

  • A rebound from/near 112.50 levels followed by a daily close above 113.48 (5-DMA) would open up upside towards the neckline resistance seen around 115.00 levels.
  • Only a daily close below 112.50 (sliding trend line support) would add credence to the bearish RSI and signal bullish invalidation. The 100-DMA level of 111.00 could be put to test in this case.

AUD/USD Forecast: Pull back to 0.75 likely this week

Weekly chart - Doji at critical resistance

  • Last week’s Doji candle and another failure to close above 0.77 handle points to indecision. Also note the Doji is preceded by a Dragon Fly Doji.

Daily chart - Bearish price RSI divergence

  • On the daily chart, we have a bearish price RSI divergence.
  • A break below 0.7610 would add credence to the exhaustion seen on the weekly chart and divergence on the daily chart. The spot could test 0.75 levels then. Such a move could also yield a bearish crossover the daily DMI.
  • However, bears should not get too ambitious given the fact that the ADX line is losing height and is pointing lower, which suggests weak momentum.

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Feed news

Latest Forex Analysis


Latest Forex Analysis

Editors’ Picks

EUR/USD pierces 1.1655 resistance as firmer sentiment weighs on USD

EUR/USD is holding higher ground above 1.1650 ahead of the German IFO survey. Weaker US Treasury yields, risk reset weigh on US dollar. ECB, US GDP in focus but China headlines, Fed tapering concerns will lead the sentiment.

EUR/USD News

GBP/USD: Buyers defends 1.3750 below 100-day SMA

GBP/USD edges higher on the first trading day of the week in the Asian trading hours. The pair faces strong resistance near 1.3850 below the bearish sloping line. MACD signals sideways momentum with the underlying neutral sentiment.

GBP/USD News

EUR/USD pierces 1.1655 resistance as firmer sentiment weighs on USD

EUR/USD is holding higher ground above 1.1650 ahead of the German IFO survey. Weaker US Treasury yields, risk reset weigh on US dollar. ECB, US GDP in focus but China headlines, Fed tapering concerns will lead the sentiment.

EUR/USD News

SafeMoon price presents a buy opportunity before 35% gains

SafeMoon price coils up under a crucial resistance level at $0.00000239. A sudden burst in buying pressure that shatters this barrier can kick-start a 35% ascent. In some cases, SAFEMOON could pull back to $0.00000198 or $0.00000175 support floors.

Read more

Wall Street Week Ahead: Huge week of earnings ahead AAPL, MSFT, GOOGL, AMZN, FB

Equity markets remain elevated with more all-time highs on Thursday for the broader S&P 500 while the Dow registered new highs on Wednesday and Thursday. So far late into Friday's session, the markets are seeing some profit-taking to end a solid week.

Read more

Majors

Cryptocurrencies

Signatures