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USDJPY Price Accelerates Higher on Strong US Data, Hawkish Fed

USDJPY Price Accelerates Higher on Strong US Data, Hawkish Fed

Martin Essex, MSTA,
What's on this page

USDJPY price, news and analysis:

  • The advance in USDJPY that began in late August seems to be accelerating.
  • Strong US data, hawkish comments from the Federal Reserve and higher US Treasury yields are combining to lift the US Dollar and further gains are now possible.

Check out the IG Client Sentiment data to help you trade profitably.

US Dollar in demand

USDJPY looks to be accelerating higher despite a modest setback in European trade Thursday. After reaching its highest level since November 2017, a period of consolidation now seems likely but an attempt to breach the 114.74 November 6 high seems assured.

This reflects a stronger USD, which has been boosted by data showing the US ISM non-manufacturing index rose to 61.6 last month, its highest level since the index was created in 2008 and well above both the forecast 58.0 and the previous month’s 58.5.

In addition, the ADP measure of US employment showed an increase of 230,000 last month – more than both the expected 184,000 and August’s 168,000, suggesting upside risk for Friday’s official non-farm payrolls figure.

USDJPY Price Chart, Daily Timeframe (April 26 – October 4, 2018)

Latest USDJPY price chart.

Chart by IG

Hawkish Fed

Adding to the bullish sentiment in USD, Jerome Powell, who chairs the Federal Reserve, said Wednesday that the Fed may raise US interest rates above an estimated “neutral” setting as the “remarkably positive” US economy continues to grow.

This has helped lift the yield on the benchmark 10-year US Treasury note above 3.2% to its highest level since May 2011 and the US Dollar Index (DXY) back to levels last seen in mid-August.

It has also increased the probability of another quarter-point hike in the Federal Funds rate in December to 78.1%, according to the CME FedWatch tool. Moreover, the chances of a further 25 basis points hike in March next year has climbed to 52.5%.

As for the USDJPY outlook, the 114.74 November 6 high will be tough to breach but, if it fails to hold, an attempt on the March 10 high at 115.51 would be likely.

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--- Written by Martin Essex, Analyst and Editor

Feel free to contact me via the comments section below, via email at martin.essex@ig.com or on Twitter @MartinSEssex

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

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