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USD/JPY Outlook Clouded by Conflicting Signals Ahead of Japan GDP

USD/JPY Outlook Clouded by Conflicting Signals Ahead of Japan GDP

David Song, Strategist

Talking Points:

- USD/JPY Technical Outlook Remains Clouded Ahead of Japan 2Q GDP Report.

- GBP/USD Range at Risk on Sticky U.K Inflation, Strong Retail Sales Report.

- USDOLLAR Holds Range-Support as PPI, Industrial Production Beat Market Forecast.

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USD/JPY

USD/JPY Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Even though USD/JPY appears to be trading within an ascending channel, the failure to retain the bullish RSI momentum carried over from July raises the risk of seeing a further consolidation in the exchange rate.
  • Nevertheless, the Japanese Yen may face further headwinds in the week ahead as Japan’s Gross Domestic Product (GDP) report is expected to show the growth rate contracting 0.5% following the 1.0% expansion during the first three-months of 2015, which could put increased pressure on the Bank of Japan (BoJ) to further expand its asset-purchase program.
  • DailyFX Speculative Sentiment Index (SSI) shows retail crowd remains net-long USD/JPY since June 8, with the ratio approaching recent extremes as it climbs to 1.54 as 61% of traders are long.

GBP/USD

GBP/USD Daily Chart
  • GBP/USD looks poised to retain the range-bound price action going into the week ahead amid the clutter of failed attempts to close above 1.5630 (38.2% retracement) to 1.5650 (38.2% expansion); will stay constructive on the pair as it retains the upward trend from May.
  • Even though the U.K. Core Consumer Price Index (CPI) is expected to hold steady at an annualized rate of 0.8%, a 0.4% rebound in Retail Sales may heighten the appeal of the sterling and spur a near-term breakout in GBP/USD should the data prints boost interest rate expectations.
  • Will continue to watch 1.5450 (61.8% retracement) to (1.5460 (23.6% expansion) for near-term support as GBP/USD continues to close above the region.

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Read More:

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USDOLLAR(Ticker: USDollar):

IndexLastHighLowDaily Change (%)Daily Range (% of ATR)
DJ-FXCM Dollar Index11966.3711986.111954.93-0.1258.16%
USDOLLAR Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Dow Jones-FXCM U.S. Dollar is paring the overnight decline to 11,954 amid the stickiness in the Producer Price Index (PPI) along with the pickup in Industrial Production, and the greenback may continue to face range-bound prices ahead of the Fed’s next interest rate decision on September 17 as market participants weigh the outlook for monetary policy.
  • Even though the U.S. Consumer Price Index (CPI) is expected to pick up to an annualized 0.2% from 0.1% in June, the core rate of inflation is expected to hold steady at 1.8%, and subdued price growth may raise the bar for a September liftoff as the Fed continues to look for a further improvement in the real economy.
  • USDOLLAR looks poised to retain the range going into the week ahead, with 11,898 (50% retracement) to 11,901 (78.6% expansion) seen as near-term support, while the topside remains capped by 12,049 (78.6% retracement).

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--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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