USD/JPY Forecast: Sharp recovery not granting additional gains

Valeria Bednarik FXStreet

USD/JPY Current Price: 107.95

US Treasury yields and equities responded to Fed’s stimulus and Trump’s measures.
Japanese data continue to indicate slowing economic growth, weighing on the safe-haven currency.
USD/JPY could extend gains at the beginning of the week on a break above 108.50.

The USD/JPY pair closed the week firmly higher near the 108.00 figure, after hitting a multi-year low of 101.76 on Monday. The pair added roughly 350 pips on Friday, boosted by a better market mood, triggered by US President Trump’s decision to declare a national emergency and free up as much as $50 billion in financial resources to counter the negative economic effects of the coronavirus outbreak. The move came after the Federal Reserve announced a bond-buying program on Thursday, an effort to back the financial to cope with the ongoing crisis.

Meanwhile, Japanese data continued to disappoint. The January Tertiary Industry Index released on Friday came in at 0.8% in January, missing the market’s expectation of 1.2%. At the beginning of the week, the country will release January Machinery Orders, seen down by 1.6% in the month and at -0,5% when compared to a year earlier.

USD/JPY short-term technical outlook

The USD/JPY pair has settled around the 61.8% retracement of its latest daily collapse, and while the recovery has been impressive, chances of further recoveries seem limited. In the daily chart, technical indicators advance but remain within negative levels, while the recovery stalled below moving averages. The pair topped Friday at 108.50, the level to surpass to support a bullish continuation. A weekly engulfing pattern, however, skews the risk to the upside. In the 4-hour chart, the Momentum indicator advances within overbought levels, while the RSI consolidates at 68. The 20 SMA heads firmly higher well below the current level, while the pair settled a handful of pips above the 100 SMA, favouring a bullish continuation without confirming it.

Support levels: 107.70 107.25 106.80

Resistance levels: 108.10 108.50 108.90

View Live Chart for the USD/JPY

Author

Valeria Bednarik

FXStreet

Valeria Bednarik was born and lives in Buenos Aires, Argentina. Her passion for math and numbers pushed her into studying economics in her younger years.

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