USD/JPY: forecast for October 26-30
USD/JPY rose to the upper border of its September-October trading range in the 121.00 area.
Dovish comments from the European Central Bank’s Mario Draghi improved the market’s risk sentiment, and demand for the yen as a safe haven declined. In addition, after the ECB hinted at possibility of policy easing in December, the expectations of the additional monetary stimulus from the Bank of Japan (BOJ) have significantly increased.
The Bank of Japan will meet on Friday. The meeting will be accompanied by the release of the updated economic and inflation forecasts. So far, Japanese officials have been constantly repeating that there is no need for more easing from the BOJ. Still, remembering the central bank’s surprise move of 2014, the market doesn’t believe these denials.
The market will have to wait until of the end of the next week to find out where the BOJ is standing. Until then Japan will release retail sales on Wednesday, industrial production on Thursday and inflation earlier on Friday. Low inflation is the main argument for the Bank of Japan to ease policy. According to the forecasts, Japan’s core inflation probably slipped for a second month in September, while factory output fell for a third month in a row. However, oil prices are now more stable than in the autumn of 2014 and the nation’s labor market is in a rather good shape. This is why the central bank may stay on hold.
The Federal Reserve’s meeting on Wednesday will surely have a significant impact on the pair, though the further trend will depend mostly on the Bank of Japan’s decision. Additional stimulus will make USD/JPY skyrocket to 123.00 and higher. Other resistance levels are at 121.76/80, 122.00 and 122.50. If those who expects increase in stimulus get disappointed, the pair will drop, but 117.00 (long-term uptrend support) should limit the decline. Other support levels include 120.00, 119.60 and 118.80.