USD/JPY got stuck between 124.50 and 123.50. What will its next move be like?
The advance of the US dollar has stalled in the past week as traders took profit on their bullish positions. The Bank of Japan’s Governor Kuroda talked down the possibility of further monetary stimulus in Japan. In addition, volatility at gold market and weaker-than-expected data from China contributed to demand for the yen as a safe haven, though some progress reached in Greece brought some relief.
Next week Japan will release retail sales data on Wednesday and inflation figures on Friday. As the recent economic readings from Japan have been mediocre, it looks like the nation will have at least to keep its current extremely loose monetary policy, if not add additional stimulus. This won’t let the yen strengthen much. Moreover, USD/JPY will be driven primarily by the Federal Reserve’s monetary announcement on Wednesday and American GDP release on Thursday.
Forecast: As American yields will likely rise ahead and after these releases, the best strategy is to buy USD/JPY on the dips. Further support is at 122.85/50 and 121.50. Note, however, that resistance at 125.00 will be a big obstacle for the bulls: only very hawkish Fed’s statement or extraordinary high US economic growth could push the pair above this level. Also keep in mind that the negotiations on Trans-Pacific Partnership will be at decisive stage on July 28-31 and too high dollar exchange rate will be very unwelcome for a success of these talks. 