USD/JPY Forecast: FOMC Fuels Rally, but Will Japanese Trade Data Cool the Fire

Highlights

• Japanese trade data and machinery orders loom but may not sway BoJ’s stance.
• China’s economic health casts a shadow and will likely influence the BoJ’s thinking.
• Tight US labor market conditions could bolster the case for further Fed rate hikes.

Overview

On Wednesday, the USD/JPY rose by 0.53% to wrap up the day at 146.342. A bearish start to the day saw the USD/JPY fall to a session low of 145.303. However, the FOMC meeting minutes fueled a late rally, with the USD/JPY striking a session high of 146.406 before easing back.

This morning, trade and core machinery orders will move the dial. While a jump in core machinery orders and better-than-expected trade data will draw interest, the numbers may not be enough to knock the BoJ off its ultra-loose perch.

However, we expect some interest in the export numbers to China, with weak demand likely to weigh on riskier assets and favor the dollar.

China jitters will likely play a hand in the Bank’s thought process over the near term.

US Jobless Claims Could Deliver 147

Philly Fed Manufacturing Index numbers and US jobless claims will also provide direction. A fall in jobless claims would question the theory of a softer US labor market and support hawkish Fed bets.

We expect the jobless claims to trump the Philly Fed Manufacturing data.

It is worth noting that the Philly Fed numbers are unlikely to influence the Fed. The manufacturing sector accounts for less than 30% of the US economy and is unlikely to dictate sentiment toward Fed monetary policy. In contrast, tight labor market conditions support further Fed rate hikes to curb demand-driven inflation.

USD/JPY Price Action

Daily Chart

The Daily Chart showed the USD/JPY holding above the upper level of the 144.3 – 145.0 resistance band. After the Wednesday session, the USD/JPY remained above 50-day and 200-day EMAs, sending bullish near and longer-term price signals.

Looking at the 14-Daily RSI, 70.20 reflects bullish sentiment, supporting a run at 147. However, a USD/JPY fall through the upper level of the 144.3 – 145.0 resistance band would give the bears a look at sub-144.

4-Hourly Chart

Looking at the 4-Hourly Chart, the USD/JPY faces strong resistance at 146.5. The USD/JPY sits above the 144.3 – 145.0 resistance band and the 50-day and 200-day EMAs, affirming the bullish near and longer-term price signals.

A hold above the 144.3 – 145.0 resistance band and the 50-day EMA would support a breakout from 146.5 to target 147. However, a fall through the upper levels of the 144.3 – 145.0 resistance band and 50-day EMA would bring sub-144 into play.

The 14-4H RSI reading of 80.35 shows the USD/JPY in overbought territory, with buying pressure outweighing selling pressure. However, the RSI aligns with the 50-day EMA, supporting a run at 147.