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Japanese Yen Talking Points

USD/JPY climbs to fresh yearly highs as U.S. lawmakers work arduously to avert another government shutdown, and the exchange rate may continue to carve higher highs & lows over the coming days as it breaks out of the range-bound price action from the previous week.

Image of daily change for major currencies

Post-NFP USD/JPY Rally Gathers Pace as U.S. Averts Another Shutdown

Image of daily change for usdjpy rate

The USD/JPY advance triggered by 304K expansion in U.S. Non-Farm Payrolls (NFP) appears to be gathering pace even though the Federal Open Market Committee (FOMC) drops the hawkish forward-guidance for monetary policy, and the current environment may continue to boost the appeal of the dollar as U.S. Treasury yields highlight a similar dynamic.

Image of fed fund futures

Keep in mind, Fed Fund Futures still show the FOMC on hold throughout 2019 as the ‘the case for raising rates has weakened somewhat,’ and a growing number of central bank officials appear to be making the case to conclude the hiking-cycle ahead of schedule as ‘inflation readings have been muted.’ However, Chairman Jerome Powell & Co. may have a difficult time defending a wait-and-see approach as data prints coming out of the U.S. economy show little to no signs of an imminent recession.

Image of Atlanta Fed GDPNow model forecast

At the same time, the Atlanta Fed GDPNow modelestimate for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2018 is 2.7 percent on February 6, up from 2.5 percent on February 1,’ and the scope for a more robust economy may boost the appeal of the U.S. dollar as it puts pressure on the FOMC to further normalize monetary policy in 2019. With that said, the USD/JPY flash crash rebound looks poised to persist as both price and the Relative Strength Index (RSI) track the bullish trends from earlier this year, and recent price action raises the risk for a further appreciation in the exchange rate as it carves a fresh series of higher highs & lows. Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups.

USD/JPY Daily Chart

Image of usdjpy daily chart
  • Near-term outlook for USD/JPY remains constructive as the 108.30 (61.8% retracement) to 108.40 (100% expansion) area offers support, with the close above the 109.40 (50% retracement) to 110.00 (78.6% expansion) region bringing the 111.10 (61.8% expansion) to 111.80 (23.6% expansion) area on the radar.
  • Next area of interest comes in around 112.40 (61.8% retracement) to 113.00 (38.2% expansion) followed by the Fibonacci overlap around 113.80 (23.6% expansion) to .114.30 (23.6% retracement).
  • Recent developments in the RSI instill a constructive outlook for USD/JPY as it response to trendline support, with the oscillator also in focus as it works its way towards overbought territory.

For more in-depth analysis, check out the Q1 2019 Forecast for the Japanese Yen

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--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.