Currency Analyst since 2010

USD/JPY: outlook for October 10-14

USD/JPY took off from 101.20 to 104.00, almost reaching September highs. The main driver of the pair was the strength of the US dollar on the upbeat American economic figures. On Friday, however, US currency declined on lower-than-expected NFP figures.

Japanese monetary authorities are probably really glad that the demand for the yen has weakened as it seems that they are not able to generate the yen’s weakness on their own. A weaker yen should help Japanese exporters and encourage the too-low inflation. At the same time, the current situation emphasizes that the Bank of Japan’s lack of power to influence the market: the reaction to the BOJ’s September policy adjustments was much less strong.

The pair broke above 2016 resistance line in the 102.00 area. These levels also correspond to 50-day MA and will now act as support for the greenback. Decline below this point will once again give power to the bears. Resistance lies at 104.40 and 105.50.

Note that even though USD/JPY can keep trying to show short-term gains thanks to the external environment such as higher oil prices, the longer-term the bullish move will unlikely be sustainable as there’s no additional fuel provided to the pair by the Japanese side of things.

Next week there won’t be many news from Japan, so focus on the US releases. Japanese banks will be closed on Monday because of the bank holiday. On Tuesday Japan will release current account figures and economy watchers’ sentiment. Tertiary industry activity is due on Thursday. Watch China’s trade balance on Thursday and inflation on Friday – these figures will have an impact on the market’s risk sentiment and, consequently, demand for the yen. 

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