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USD/JPY Initiates Bearish Sequence Amid Failed Run at August-High

USD/JPY Initiates Bearish Sequence Amid Failed Run at August-High

David Song, Strategist
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Fundamental Forecast for Japanese Yen: Bullish

Japanese Yen Talking Points

The recent rebound in USD/JPY unravels following the failed attempt to test the monthly-high (112.15), but fresh data prints coming out of the U.S. economy may prop up the exchange rate as Non-Farm Payrolls (NFP) are projected to increase another 191K in August.

Signs of a more robust labor market should keep the Federal Open Market Committee (FOMC) on track to further normalize monetary policy as the central bank largely achieves its dual mandate for full-employment and price stability, and Fed officials may ultimately prepare U.S. households and businesses for four rate-hikes in 2018 as the updates are also anticipated to show Average Hourly Earnings climbing to 2.8% from 2.7% in July.

USD/JPY Initiates Bearish Sequence Amid Failed Run at August-High

Keep in mind, Fed Fund Futures continue to reflect expectations for higher borrowing-costs, with market participants gearing up for a move in September and December, and a batch of positive developments may heighten the appeal of the U.S. dollar as it puts pressure on the FOMC to extend the hiking-cycle.

However, a set of lackluster data prints may drag on the greenback as Chairman Jerome Powell talks down the risk for above-target inflation, and central bank officials may continue to project a longer-run Fed Funds rate of 2.75% to 3.00% as ‘‘there does not seem to be an elevated risk of overheating.’ Until then, USD/JPY may continue to give back the advance from the August-low (109.77) following the failed attempt to test the monthly-high (112.15), with the exchange rate at risk of exhibiting a more bearish behavior over the coming days as it starts to carve a series of lower highs & lows. Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups!

USD/JPY Daily Chart

USD/JPY Initiates Bearish Sequence Amid Failed Run at August-High

Failure to break the August opening range may produce range-bound conditions in USD/JPY, with the fresh series of lower highs & lows raising the risk for a move back towards the 109.40 (50% retracement) to 110.00 (78.6% expansion) region, which largely lines up with the monthly-low (109.77). Need a break below the stated region to open up the downside targets, with the next region of interest coming in around 108.30 (61.8% retracement) to 108.40 (100% expansion), which sits just above the May-low (108.11).

For more in-depth analysis, check out the Q3 Forecast for Japanese Yen

Additional Trading Resources

Are you looking to improve your trading approach? Review the ‘Traits of a Successful Trader’ series on how to effectively use leverage along with other best practices that any trader can follow.

Want to know what other currency pairs the DailyFX team is watching? Download and review the Top Trading Opportunities for 2018.

--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.

Other Weekly Fundamental Forecasts:

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.