USD/JPY Forecast: Holding Steady Amid Russia Tensions, US Data, Powell Remarks

Highlights

• USD/JPY maintains steady position amidst Russia tensions and U.S. data anticipation.
• Focus on significant U.S. economic data and stress test results for largest banks.
• Market participants anticipate rate hike as tension, data to influence USD/JPY.

Overview

The USD/JPY maintained a steady position on Tuesday amidst simmering tensions in Russia and anticipation for key U.S. data that could influence the timing of interest rate hikes. Russian President Vladimir Putin recently explained that he allowed an aborted mutiny to continue, aiming to prevent bloodshed, a crisis that led to the greenback reaching a 15-month high against the ruble.

US Data, Fed Stress Test Ahead

This week, the focus will be on significant U.S. economic data, including new orders for durable goods, housing figures, and consumer surveys from The Conference Board and University of Michigan. Additionally, on Wednesday, the Federal Reserve will unveil the results of its annual stress test for the largest U.S. banks. This test will determine the extent to which banks can distribute capital to shareholders through stock buybacks and dividends.

Durable Goods, New-Home Sales Await

Regarding economic data, the Census Bureau is set to release the durable goods report for May on Tuesday. Additionally, new-home sales data for the same month will also be disclosed. Economists predict a 1% decline in new orders for manufactured durable goods to $280 billion compared to April. As for new-home sales, the consensus estimate is a seasonally adjusted annual rate of 659,000, with 24,000 fewer sales than in April.

Crucial Stress Test Shapes Banks’ Capital Distribution

The Federal Reserve’s annual stress test is a crucial factor in determining the ability of banks to return capital to shareholders. It establishes the capital cushion required to withstand market and economic shocks. Banks with $100 billion or more in assets must participate annually. Meanwhile, those with $100 to $250 billion in assets participate every other year.

GDP, Personal Income Expected to Rise

Other significant reports include the Bureau of Economic Analysis’ final estimate of first-quarter gross-domestic-product growth, expected to show a 1.4% increase. The Bureau will also release data on personal income and expenditures for May, with estimates suggesting a 0.4% rise in income and a 0.3% increase in spending.

Anticipated Fed Rate Hikes Support Dollar

Market participants anticipate a 25 basis point hike in the Federal Reserve’s funds target rate in July. However, the future trajectory remains uncertain. The upcoming U.S. economic data will play a crucial role in shaping expectations. Strong data could lead to further pricing in of two rate hikes, which would support a rise in the dollar.

Short-Term Outlook:  News-Driven Fundamentals Suggest Volatile Trade

Overall, with tensions in Russia and crucial U.S. data on the horizon, the USD/JPY pair is poised for potential shifts in the coming days. Traders will closely monitor the data releases for clues about the direction of interest rates.

Technical Analysis

USD/JPY sentiment is bullish on the 4-Hour Chart. The current price of 143.554 is slightly higher than the previous close of 143.498, indicating upward movement. The price is comfortably above the 200-4H moving average at 139.542, as well as the 50-4H moving average at 142.145, confirming the bullish outlook. The 14-4H RSI of 64.53 suggests a moderately positive sentiment with buying pressure.

Support areas are located at 138.783 to 138.441 and 141.476 to 141.206, providing a strong base for the market. Overall, based on the technical indicators, the USD/JPY market is currently bullish.