- USD/JPY may run higher as the Japanese fundamentals show little weakness.
- Yen may come under pressure amid coming up elections.
- US yields remained stagnant, providing little room for Greenback.
The USD/JPY weekly forecast is neutral to bullish as Fed’s hawkishness may support the US dollar while the Yen may weaken further amid the Covid spread and political crisis.
Due to controversial events, the USD/JPY pair has been stuck in the narrow range of around 110.00 since mid-August.
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Monday, a US holiday, saw the pair open at 109.72, but on Wednesday hit 110.45, its highest level since August 13, before closing at 109.71 on Thursday. This stagnation was confirmed by a slight gain on Friday to 109.89.
A combination of stagnant interest rates on US Treasury bonds and declining secure dollar trading were offset by the resignation of the unpopular Japanese prime minister Yoshihide Suga and weak economic data, and an outbreak of Covid in parts of the country. Mr Suga succeeded Shinzo Abe, who retired due to health reasons last year.
On September 29, a bipartisan vote will choose the new leader of the Liberal Democratic Party (LDP), which will lead to the autumn election and a new government. Three candidates are leading the LDP competition.
No matter which path is chosen, the new government will certainly accept a stimulus package for the pandemic-hit Japanese economy. With tight spending, Japan could further weaken the Yen.
A resumption of the pandemic has hurt Japan’s economy.
In July, the total household expenditures were 0.7%, just a quarter of the expected 2.9%, following a 5.1% decline in June. In addition, as expected, the July Leading and Coincident indexes were lower than June’s. Thus, despite a slight improvement over expectations for the second quarter, the gross domestic product will drop sharply in the third quarter.
In August, the Eco Watchers Survey, a summary of regional economic trends, fell short of its forecasts and current developments.
The US economy is experiencing a discrepancy between weak indicators of consumer sentiment and high employment numbers. For the fifth consecutive month in August, unemployment rates and job vacancies rose in the labour market. On the other hand, the number of initial jobless claims declined to its lowest level since the pandemic.
Pessimism about consumption is the result of higher inflation. Consumer prices continued their alarming ascent in August, as revealed by the increased PPI.
The yields on government bonds remained virtually unchanged this week. However, one point gained to 1.326% for the 10-year bonds and increased to 0.219% for the 2-year bonds.
ECB President Christine Lagarde’s relatively optimistic assessment of the continent’s recovery at a press conference after Thursday’s interest rate decision did little to strengthen the euro or devalue the dollar. Fed Chair Jerome Powell saw a similar reaction to his August tapering announcement.
Key events in Japan during Sep 13 – 17
The Japanese economic calendar for the next week is quite light. However, PPI figures, industrial production and machinery orders data may provide slight volatility to the market.
Key events in the US during Sep 13 – 17
The next week comes up with yearly core inflation data, which is expected to slightly decline. However, a major surprise in numbers can trigger a big movement in the market. Furthermore, retail sales data will be released on Tuesday, which is expected to slightly improve. Retail sales data is important as it is considered an indicator to gauge market activity. Finally, on Friday, Michigan Consumer Sentiment data is expected to release, which may support the US dollar.
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USD/JPY weekly technical forecast: Wedge breakout
The USD/JPY price is moving within the rising wedge pattern. The pair saw a mild dip during the week while the bearish volume increased. However, the rising wedge has not been broken yet. The price is wobbling around the key SMAs, converging in a narrow zone. A downside breakout may lead to 109.40 ahead of 108.70. Contrarily, if the upside breakout occurs, the price may rally to 110.40 ahead of 111.65. However, the technical perspective shows a higher probability of bearish breakout.
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