USD/JPY: forecast for November 2-8

By Elizabeth Belugina

The Bank of Japan didn’t increase the size of its monetary stimulus package. As a result, USD/JPY failed to make a big break to the upside. The pair remained limited on the upside by the 121.50 area.

However, declines of dollar/yen after the central bank’s meeting weren’t very extensive. Many still expect the Bank of Japan to ease sometime in future, later this year or in early 2016. As a result, the pair has fundamental support around 118.00/117.50.

Japan still has the problem of deflation: core consumer prices fell for the second month in a row in September. However, the Bank of Japan is already buying immense number of bonds to help the economy and lift up prices, so further easing is risky. The yen is at the comfortable levels for the regulator and the bid tone for USD/JPY remains as the Federal Reserve’s rate hike remain on the table. All in all, despite Japanese economic problems, the central bank can allow itself to remain in the wait-and-see mode keeping the current policy unchanged. On the broad scale, it means that USD/JPY won’t diverge much form its current trading range.

In the short term the pair may be affected by the swings in risk sentiment. There will be a big release of Chinese data on Monday morning. Lower manufacturing PMI in China will increase demand for the yen as a safe haven. In addition, pay attention to the US economic releases: together with the risk sentiment they will represent the main driver of USD/JPY.

Trading is going to be volatile. Support is at 120.00, 119.60 and 118.00. Resistanceisat 121.00, 121.80 and 122.50. 

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