USD/JPY Forecast: Will fear push it lower? A busy week awaits

After a week that saw both Brexit and trade talks hit bumps on the road, top US events are set to rock markets. It does not get more packed than having the first release of US GDP, the Fed decision, and Non-Farm Payrolls all at once. 

This week in USD/JPY: Politics are stuck again

The neverending Brexit saga has topped the headlines once again. Parliament thwarted Prime Minister Boris Johnson's first attempt at Brexit by practically forcing him to ask for an extension. The PM did succeed in passing the first hurdle of the Withdrawal Act Bill (WAB) but failed to receive approval for an expedited program motion – killing the chances of the UK leaving by the October 31 deadline. 

USD/JPY has been following GBP/USD. Brexit optimism weakened the safe-haven yen while the drag sent it back down. Brexit has remained a global issue. An extension means that the topic´s impact will be confined to sterling, with only minor influence on the yen.

Not only British MPs had issues reaching agreements – so did US and Chinese negotiators. The world's largest economies have kept the discussions under wraps, but comments from White House Advisor Larry Kudlow have revealed that little progress was made. Kudlow said that issues related to the first phase of the deal might spill into the second phase. That also weighed on market sentiment. 

US figures have been mixed as markets continue speculating about the Fed decision. Durable Goods Orders dropped by 1.1%, core orders by 0.3%, and non-defense ex-aircraft by 0.5% – all below expectations. On the other hand, New Home Sales remained upbeat with 701K annualized, and Markit's preliminary Purchasing Managers' Indexes for October continued showing expansion. 

US events: Fasten your seatbelts

It will be a week to remember on the US calendar – and it may confirm or disprove fears of a recession. On Tuesday, Consumer sentiment will provide new information about the shoppers – which push the economy forward. Super Wednesday features ADP's Non-Farm Payrolls, a hint for Friday's jobs report. It is instantly followed by the first read of Gross Domestic Product for the third quarter – which is set to show a slowdown.

The Fed concludes the day with a rate cut – but that is far from being guaranteed. High uncertainty may trigger elevated volatility. Last but least, Friday's post-Halloween jobs report could also spook markets.

For a full guide and everything you need to know, see Halloween Week: Guide to five critical US events that may spook markets about a recession

Here are the top US events as they appear on the forex calendar: 

Japan: BOJ decides after the Fed

While the yen is mostly sensitive to global developments such as trade, Brexit, and geopolitics, Japan's economic calendar is packed in the upcoming week. 

The Tokyo region's Consumer Price Index figures for October are expected to show ongoing weak inflation –well below the 2% target. The figures feed into the Bank of Japan's rate decision early on Thursday.

Will the BOJ cut interest rates once again? Governor Haruhiko Kuroda and his colleagues have raised the option. A mix of weak CPI and another cut by the Fed on Wednesday may push the BOJ into action. 

It is essential to note that negative rates have been unable to help push inflation higher nor create growth. A reduction from -0.10% to -0.20% will hurt banks even more than it does now. However, the BOJ competes with other central banks and would dislike another appreciation of the yen. 

Here are the events lined up in Japan:

USD/JPY Technical Analysis

USD/JPY is holding in the range, and bulls continue commanding advantage over the bears. The trend in recent weeks has been to the upside, as the higher highs and higher lows show. The currency pair is trading above the 50-day and 100-day Simple Moving Averages but below the 200-day SMA. Momentum remains positive. 

Resistance awaits at 109, which capped it earlier in October. The 200-day SMA is another cap at 109.15, and it is closely followed by another line – 109.35, which was a swing high in early August. Further above, 109.95 was a peak in May, and the next lines to watch are 110.65 and 111.05. 

Initial support is at the former double-top of 108.50. It Support awaits at 108.20, which was a low point in late October and held USD/JPY earlier. 107.50 is where the 100-day SMA meets a support line from July. Lower, 107 was a cushion in September and capped the pair in August. Lower, 106.50 is October's low. 

USD/JPY Sentiment

Top-tier US figures will likely extend fears of a slowdown – weighing on the USD/JPY. Even if the Fed refrains from cutting rates at this juncture, an open door for doing so in December may be enough to weigh on the greenback. Overall, there are good chances that the recovery will come to an end.

The FX Poll is experts are mildly bullish in the short term but foresee falls in the medium and long terms. The target for the short term is little changed while medium and long term objectives have been upgraded. Are bearish forecasters becoming more optimistic? 

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