Fundamental Forecast for Japanese Yen: Bullish
The Bank of Japan (BoJ) interest rate decision has done little to alter the near-term outlook for USD/JPY, with the pair at risk of giving back the rebound from the June-low (108.80) if the Federal Reserve endorses a more gradual path in normalizing monetary policy.
Chair Janet Yellen and Co. are widely expected to keep the benchmark interest rate on hold amid the mixed developments coming out of the U.S. economy, and the committee may merely attempt to buy more time as inflation continues to run below the 2% target. Despite preliminary talks of unloading of the balance sheet later this year, waning expectations for three Fed rate-hikes in 2017 may continue to sap the appeal of the greenback especially as Chair Yellen argues that ‘the federal funds rate would not have to rise all that much further to get to a neutral policy stance.’
With Fed Fund Futures still showing a 50/50 chance for a move in December, market participants may put increase emphasis on the 2Q Gross Domestic Product (GDP) report as the growth rate is expected to pick up from the first three-months of 2017. However, a material slowdown in the core Personal Consumption Expenditure (PCE), the Fed’s preferred gauge for inflation, may ultimately spark a bearish reaction in the U.S. dollar as signs of easing price growth undermine the FOMC’s ability to implement higher borrowing-costs.
USD/JPY Daily Chart
DailyFX 3Q ForecastsAre Available in Our Trading Guides
Downside targets are on the radar as both price and the Relative Strength Index (RSI) carve a bearish formation going into the last full-week of July. The break of the near-term support zone around 111.10 (61.8% expansion) to 111.60 (38.2% retracement) opens up the next region of interest around 109.40 (50% retracement) to 109.90 (78.6% expansion) followed by the June-low (108.80), which sits just above the Fibonacci overlap coming in at 108.30 (61.8% retracement) to 108.40 (100% expansion).
USD/JPY Retail Sentiment
Check out the new gauge developed by DailyFX based on trader positioning.
Retail trader data shows 63.1% of traders are net-long USD/JPY with the ratio of traders long to short at 1.71 to 1. The percentage of traders net-long is now its highest since June 23 when USD/JPY traded near 111.265. The number of traders net-long is 1.7% lower than yesterday and 22.4% higher from last week, while the number of traders net-short is 17.2% lower than yesterday and 24.3% lower from last week.
Sign up for David's e-mail distribution list