USD/JPY: a volatile week

By Elizaveta Belugina

USD/JPY touched 103.00 earlier today, but then found support and recovered to 103.25. US dollar failed to fix above 104.00 because of NFP data: the figures were strong as the winter weather effects finally go away, but not as strong as the market expected, while American unemployment rate failed to decline. So, the pair turned down from the top of a smooth upward channel.

This may be quite a volatile week for USD/JPY. Tomorrow the Bank of Japan will hold the first of its two April meetings. This will also be the first meeting of the regulator since the increase of consumption tax on April 1. According to the consensus forecast, the BOJ will leave the policy unchanged. The central bank has said it will take further easing steps if the economy seems to be weakening, but it’s too soon to say how big will be the negative impact of the tax hike. The BOJ statement and Governor Kuroda’s comments may clarify the situation a bit, but I wouldn’t count on that. The less concrete is the BOJ rhetoric about increasing asset purchases, the better for JPY bulls. On the other hand, on Wednesday the FOMC will release its March meeting minutes. There may be more details on why the Fed’s Chairman Yellen sounded more hawkish which may be positive for USD. Add the swings in the risk sentiment, and you’ll understand why the fundamental background for USD/JPY this week hints for high volatility.

USD/JPY is supported by the daily Ichimoku Cloud and 50% Fibo of the January-February decline. Below 103.65 the pair will be vulnerable for decline to 102.60 and 101.50 (base of the channel). On the upside resistance lies at 103.65, 104.10 and 104.35.

Chart. Daily USD/JPY

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