USD/JPY Outlook: Focus remains on BoJ meeting and US GDP on Thursday

  • A combination of factors pushed USD/JPY higher for the second straight session on Tuesday.
  • The prevalent risk-on mood undermined the safe-haven JPY and acted as a tailwind for the pair.
  • Upbeat US macro data provided a modest lift to the USD and remained supportive of the move.
  • The upside remains capped ahead of Thursday’s BoJ policy meeting and the key US GDP report.

The USD/JPY pair built on the previous day's rebound from ascending trend-line support extending from September swing lows, around the 113.40 area and gained strong positive traction on Tuesday. The dominant risk-on mood undermined the safe-haven Japanese yen and was seen as a key factor that acted as a tailwind for the major. The intraday positive move pushed the pair to three-day tops and was further fueled by the emergence of fresh buying around the US dollar, which drew some support from upbeat US data. The Conference Board's US Consumer Confidence Index reversed a three-month downward trend and improved to 113.8 in October from 109.8 previous. Additional details of the report showed that the Present Situation Index rose from 144.3 to 147.4, while the Expectations index climbed from 86.7 in September to 91.3.

Separately, Richmond Fed Manufacturing Index surpassed even the most optimistic estimates and jumped to 12 for the current month from -3 in the previous month. Adding to this, US New Home Sales increased by 14% in September to an 800,000 annualized pace, up from a downwardly revised pace of 702,000 in August. This marked the highest level in six months and underscored solid underlying demand.  The USD uptick, however, lacked bullish conviction amid an extension of the recent decline in the US Treasury bond yields. The yield on the benchmark 10-year US government bond dropped to the 1.61% area amid uncertainty over the likely timing of monetary policy tightening by the Fed. This, in turn, held the USD bulls from placing any aggressive bets and capped gains for the major, rather prompted some selling during the Asian session on Wednesday.

Investors also preferred to wait on the sidelines ahead of Thursday's key event/data risk – the Bank of Japan monetary policy meeting and the release of the Advance US Q3 GDP report. Beyond this, the US Core PCE Price Index on Friday will attract the market attention and set the stage heading into the FOMC monetary policy meeting next week. In the meantime, traders might take cues from the release of US Durable Goods Orders data later during the early North American session. This, along with the US bond yields, will influence the USD price dynamics and provide some impetus to the major. Apart from this, the broader market risk sentiment should further assist traders to grab some short-term opportunities.

Technical outlook

From a technical perspective, the recent pullback from multi-year tops stalled near support marked by the lower boundary of an ascending channel extending from September swing lows. The subsequent price action favours bullish traders, though the lack of follow-through buying warrants some caution. Hence, it will be prudent to wait for a sustained move beyond the recent daily closing highs resistance, near the 114.30-35 region, before positioning for any further appreciating move. The pair might then resume its one-month-old bullish trend and aim to reclaim the key 115.00 psychological mark. The momentum could further get extended towards challenging the trend-channel resistance, currently around the 115.65 zone, which could prove a tough nut to crack for bullish traders.

On the flip side, the trend-channel support, currently around the 113.70 region, might continue to protect the immediate downside. A convincing breakthrough, leading to a subsequent slide below the 113.40 area, will be seen as a fresh trigger for bearish traders. The pair might then accelerate the corrective pullback towards the 113.00 round-figure mark. Some follow-through selling will set the stage for a deeper pullback towards testing sub-112.00 levels, with some intermediate support near the 112.60-50 region.


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