Technical declines barred by a strong dollar at 110
- USD / JPY could rise as Japanese fundamentals show little weakness.
- The yen could come under pressure as the elections approach.
- US rates have remained stagnant, leaving little room for the greenback.
The USD / JPY weekly forecast is neutral to bullish as the Fed’s hawkishness could support the US dollar while the yen could weaken further amid the spread of Covid and the political crisis.
Due to controversial events, USD / JPY has remained stuck in a narrow range of around 110.00 since mid-August.
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On Monday, a public holiday in the United States, the pair opened at 109.72, but hit 110.45 on Wednesday, 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 dollar secure trade has been offset by the resignation of unpopular Japanese Prime Minister Yoshihide Suga and weak economic data, and a Covid outbreak in some parts of the country. Mr Suga succeeded Shinzo Abe, who retired for health reasons last year.
On September 29, a bipartisan vote will choose the new leader of the Liberal Democratic Party (PLD), which will lead to the fall elections and a new government. Three candidates are leading the LDP competition.
Whatever path is chosen, the new government will certainly agree to a stimulus package for the Japanese economy affected by the pandemic. With tight spending, Japan could weaken the yen further.
A resumption of the pandemic has hurt the Japanese economy.
In July, total household spending was 0.7%, just a quarter of the 2.9% expected, after falling 5.1% in June. In addition, as expected, the main and coincident indices for July were lower than those for June. Thus, despite a slight improvement compared to expectations for the second quarter, gross domestic product will decline 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 gap between weak indicators of consumer confidence and strong employment figures. For the fifth consecutive month in August, unemployment rates and job vacancies rose in the labor market. In contrast, the number of initial jobless claims fell to its lowest level since the pandemic.
Pessimism about consumption is the result of higher inflation. Consumer prices continued their alarming rise in August, as the increase in the PPI revealed.
Government bond yields were virtually unchanged this week. However, one point gains to 1.326% for 10-year bonds and increases to 0.219% for 2-year bonds.
ECB President Christine Lagarde’s relatively optimistic assessment of the continent’s recovery at a press conference following Thursday’s interest rate decision did little to strengthen the euro or devalue the euro. dollar. Fed Chairman Jerome Powell experienced a similar reaction to his August cutback announcement.
Key events in Japan from September 13 to 17
The Japanese economic calendar for next week is quite light. However, PPI figures, industrial production and machine orders may provide slight volatility in the market.
Key events in the United States from September 13 to 17
Next week comes with annual core inflation data, which should decline slightly. However, a major surprise in the numbers can trigger a big move in the market. In addition, retail sales data will be released on Tuesday, which is expected to improve slightly. Retail sales data is important because it is considered as an indicator to assess market activity. Finally, on Friday, Michigan consumer sentiment data is expected to be released, which could support the US dollar.
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USD / JPY weekly technical forecast: breakout of the coin
The USD / JPY price is moving in the ascending wedge pattern. The pair saw a slight decline during the week as bearish volume increased. However, the ascending wedge has not yet been broken. The price hovers around the major SMAs, converging in a narrow area. A break down could lead to 109.40 before 108.70. On the contrary, if the bullish breakout occurs, the price could rise to 110.40 before 111.65. However, the technical outlook shows a higher probability of a bearish breakout.
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