Key Points:
- USD/JPY likely to remain bullish in the near term as dollar surges
- BOJ discussing removing stimulus and tapering
- Watch for a move towards the 112.00 handle in the coming week
The USD/JPY was strongly positive throughout most of last week as the pair rallied strongly in response to the U.S. Fed’s decision to hike interest rates. Subsequently, the pair closed the week sharply higher around the 1.1084 mark and within striking distance of the 100 Day MA. However, it remains to be seen if the USD/JPY can mount a successful attack on the 112 handle in the near term. So let’s take a look at what occurred last week and what is potentially looming on the horizon in the week ahead.
The USD/JPY had a relatively strong week as the pair reacted to a hawkish move by the U.S. Federal Reserve to raise the Federal Funds Rate by 25 basis points. This saw the pair moving sharply to the upside and was exacerbated by a highly negative JPY Core Machinery Orders result of -3.1%. Subsequently, the USD/JPY rallied sharply to close the week around the 110.84 mark and is now relatively close to breaking the declining 50 and 100 Day MA’s.
In addition, the Bank of Japan was also active late in the week with their monetary policy decision to keep rates on hold at -0.10%. Although this didn’t prove to be a volatility inducing event it did provide some forward guidance that could potentially impact the pair over the medium term. In fact, the bank is still in the process of releasing their latest reports on the impact of their plans to remove some stimulus from the market. Subsequently, it could be some time before we see an actionable plan but if the BOJ does move to taper then we could see a significant impact upon the JPY.
The coming week is likely to focus strongly on the U.S. Unemployment Claims and Flash Manufacturing PMI figures given the abject lack of Japanese economic data due out. Subsequently, it would pay dividends to keep a close watch on the labour market data as it will need to provide a surprise, above the forecasted 240k, to guarantee a rally. In contrast, the Flash Manufacturing PMI will in all likelihood come in right on forecasts at 53.0 so will play less of a role in driving the near term trend.
From a technical perspective, the USD/JPY’s recent rally has taken it relatively close to breaking above the 50 and 100 Day EMA’s. Additionally, the RSI Oscillator appears to be climbing out of the doldrums and rising within neutral territory. Subsequently, our initial bias for the week ahead is cautiously bullish and we would expect to see further gains towards the 112.00 handle. Support is currently in place for the pair at 109.11, and 108.16. Resistance exists on the upside at 111.41,112.19, and 113.76.
Ultimately, the ongoing technical resurgence of the USD/JPY is likely to continue in the near term, especially if price action can surmount dynamic resistance around the 100 Day MA. In addition, there is next to no Japanese economic news of any significance due for release which means that the focus is likely to stay upon the buoyant U.S. labour market results. Subsequently, there are plenty of reasons to believe that the USD/JPY will continue to trend higher and towards the 1.12 handle.