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Japanese Yen Forecast: USD/JPY Key to Short-Term US Dollar Direction

Japanese Yen Forecast: USD/JPY Key to Short-Term US Dollar Direction

Justin McQueen, Analyst

USD/JPY Price Analysis & News

  • FX Uninspiring Thus Far, Eyes on Powell and Biden
  • Fed Pushback on Taper Talk
  • USD/JPY Upside Capped, Support in Focus

FX Uninspiring Thus Far, Eyes on Powell and Biden

Price action across the FX space has been somewhat uninspiring throughout the week with major pairs continuing to trade in choppy conditions. Two major drivers in focus today for FX markets, firstly, Chair Powell is to speak for the first time this year at 17:30GMT, while Biden is due to outline his fiscal policy from 00:00GMT.

On the Fed front, several officials have pushed back against the narrative that the central bank could consider tapering QE purchases earlier than markets expect. In turn, US fixed income has seen a slight repricing as bond yields pulled back slightly with the comments also in stark contrast to Bostic, who signalled that the Fed could taper QE purchases at the backend of this year. As such, with bonds showing more two-way price action, this also makes the short-term trend in the USD a little less clear, particularly against the Japanese Yen, given that that pair have closely followed the move in US yields. Looking to Fed’s Powell speech, in light of recent Fed commentary, it is likely that the Fed Chair will stick to the current mantra that the pace of QE purchases will remain for quite some time.

Find out more about the Federal Reserve with the Fed Trading Guide

Federal Reserve Commentary

Japanese Yen Forecast: USD/JPY Key to Short-Term US Dollar Direction

Source: Refinitiv

Elsewhere, Biden is expected to announce a major COVD-19 relief package with people familiar with the matter suggesting that the package is around $2trillion. The relief measures are expected to include large direct payments ($2000 stimulus checks), sizeable state and local funding, as well as vaccine distribution and emergency spending provisions. However, while the announcement is likely to keep US yields firm a sizeable breakout may be hard to come by, particularly as the Fed remains very accommodative and will be for quite some time.

USD/JPY Upside Capped, Support in Focus

The recovery in USD/JPY has been capped at trendline resistance and given the slight cooling in US yields, the pair may begin its retreat below 104.00. Short term support situated at 103.50 (weekly low) where a close below, opens the door towards 102.50-70. On the topside, USD/JPY rallies are likely to be capped at the descending trendline and 100DMA.

USD/JPY BULLISH
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 4% 6% 5%
Weekly -1% 7% 2%
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USD/JPY Chart: Daily Timeframe

Japanese Yen Forecast: USD/JPY Key to Short-Term US Dollar Direction

Source: Refinitiv

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

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