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Japanese Yen Talking Points

USD/JPY appears to be making another run at the March-high (111.40) as it extends the series of higher highs & lows from the previous week, but fresh developments coming out of the U.S. economy may curb the recent advance in the dollar-yen exchange rate as the data prints rattle expectations for four Fed rate-hikes in 2018.

Image of daily change for major currencies

Bullish USD/JPY Sequence Keeps March-High on Radar

Image of daily change for USDJPY

USD/JPY remains bid after failing to test the June-low (108.72) and recent price action keeps the topside targets on the radar as both price and the Relative Strength Index (RSI) continue to track the bullish trends from earlier this year.

However, the limited reaction to the unexpected uptick in the ISM Manufacturing survey suggests dollar-yen remains vulnerable to key developments coming out of the U.S. economy as a deeper look at the updates showed the Employment component narrowing to 56.0 from 56.3 in May.

Image of Fed Fund Futures

Seasonal trends may explain for the lackluster response as market participation tends to thin ahead of the major U.S. holiday, but it seems as though the data print has done little to sway the outlook for monetary policy as it dampens bets for an upbeat Non-Farm Payrolls (NFP) report. In turn, Fed Fund Futures may continue to highlight limited expectations for four rate-hikes, with the dollar-yen exchange rate at risk of facing headwinds over the coming days should the updates to the employment report dampen the outlook for growth and inflation.

USD/JPY Daily Chart

Image of USD/JPY daily chart
  • Lack of momentum to break/close below the 109.40 (50% retracement) to 110.00 (78.6% expansion) region may foster a larger advance in USD/JPY, with the at risk of testing the March-high (111.40) as it extends the bullish sequence from the previous week.
  • Need a break/close above the 111.10 (61.8% expansion) to 111.60 (38.2% retracement) region to open up the next topside hurdle around 112.40 (61.8% retracement) to 112.80 (38.2% expansion).

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

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--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.