USD/JPY: dollar feels stronger
USD/JPY has been trading in range for third month in a row. Since the middle of January the pair tended to make higher lows. Technically the pair seems ready for the break higher. However, the consolidation hasn’t been very long if we compare it with USD/JPY’s usual ones, so further stagnation can’t be ruled out.
All in all, the fundamentals are on the dollar’s side as the Federal Reserve is expected to start raising rates sometime this year. Data showed that Japanese investors are very active in purchasing foreign stocks. According to CFTC, the overall short positions on USD/JPY are declining for weeks.
However, the seasonal factors are in favor of JPY. As March concludes the fiscal year in Japan, Japanese firms usually repatriate their USD profits, and so demand for the yen tends to increase making USD/JPY decline. Yet, this isn’t the case every year and is felt mostly in the second half of the month, so the bulls may be stronger next week all the same.
The market’s risk sentiment will also matter – the expectations of the Fed’s rate hike may actually hurt the optimism. If USD/JPY goes too high, Japanese officials may decide to discourage it a bit. On the upside watch for resistance at 121.00 and 121.84. Support is at 118.40 and 117.10.
On Monday watch the final reading of Japan’s Q4 GDP and current account. Data of average importance will also come out on Wednesday and Thursday.