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USD/JPY Rate Forecast: December-High on the Radar

USD/JPY Rate Forecast: December-High on the Radar

David Song, Strategist

Japanese Yen Talking Points

USD/JPY continues to mark fresh monthly highs, with the exchange rate now at risk of making a run at the December-high (113.75) as the bullish momentum appears to be gathering pace.

Image of daily change for major currencies

USD/JPY Rate Forecast: December-High on the Radar

Image of daily change for USDJPY

The reaction to the semi-annual Humphrey-Hawkins testimony keeps the topside targets on the radar for USD/JPY as the central bank appears to be on course to further normalize monetary policy in 2018, and fresh data prints coming out of the U.S. economy may encourage the Federal Open Market Committee (FOMC) to strike a hawkish tone at the next interest rate decision on August 1 as the Philadelphia Fed Business Confidence survey shows a meaningful improvement in July, with the gauge bouncing back to 25.7 from 19.9 the month prior.

Image of Fed Fund Futures

It seems as though the threat of a trade war will not be enough to deter the FOMC from its hiking-cycle as the central bank largely achieves its dual mandate for price stability and full-employment, and Fed Fund Futures may continue to reflect growing expectations for four rate-hikes in 2018 as Chairman Jerome Powell & Co. warn that ‘it would likely be appropriate to continue gradually raising the target range for the federal funds rate to a setting that was at or somewhat above their estimates of its longer-run level by 2019 or 2020.

As a result, the less-accommodative stance in the U.S. keeps the broader outlook for USD/JPY tilted to the topside, and the dollar-yen exchange rate may ultimately stage a run at the December-high (113.75) as long as the Relative Strength Index (RSI) sits in overbought territory.

USD/JPY Daily Chart

Image of USDJPY daily chart
  • Keep in mind, the broader outlook for USD/JPY remains constructive as both price and the RSI preserve the bullish trends from earlier this year, with recent price action raising the risk for a further advance as the pair continues to break to fresh monthly highs.
  • Another close above the 112.40 (61.8% retracement) to 112.80 (38.2% expansion) region keeps the Fibonacci overlap around 113.80 (23.6% expansion) to 114.30 (23.6% retracement) on the radar, which sits just above the December-high (113.75).
  • Will keep a close eye on the RSI as it holds in overbought territory, but a move below 70 raises the risk for a pullback in the exchange rate as the bullish momentum starts to abate.

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

Interested in having a broader discussion on current market themes? Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups!

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--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.

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

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