USD/JPY: forecast for October 19-25
During the past week USD/JPY tested lower levels in the 118.05 area. It happened as traders pulled the expectations of the Federal Reserve’s rate hike further into future. Thus, the greenback lost its main bullish driver. Moreover, demand for the Japanese yen as a safe haven was rather strong. By the end of the week, however, risk sentiment has somewhat improved, and a bullish ‘hammer’ candle was formed on the pair’s daily chart.
The US dollar is still supported by the monetary policy divergence between the US and Japan: American economic data became better, and even with the Fed’s rate hike expectations diminished it’s clear that the Unites States will be the first to tighten policy. In addition, Japan lowered its assessment of the economy and industrial production last week. Still, the Bank of Japan’s Governor Kuroda once again sounded optimistic about Japanese economy and inflation on Friday. Japan’s unwillingness to add monetary stimulus is limiting USD/JPY on the upside. As a result, the pair is doomed to continue its sideways movement.
Next week Japanese economic calendar is almost empty: it will be the calm before the storm of the Bank of Japan’s meeting on October 30. There will not be many data from the US either. As a result, risk sentiment will be the main market mover. China released weak GDP and industrial production data released on Monday, but negative sentiment was smoothed out by the expectations of additional monetary easing from the People’s Bank of China.
The bears failed to make USD/JPY fix below 118.50. It emphasizes the fact that there is demand for the American currency in this area. Further support is at 117.00 (support line since 2012). Resistance is at 120.00, 120.35 and 120.90.