USD/JPY: An Expected Move
ForexTime | Oct 20, 2014 05:14AM ET
In line with expectations, the pair pulled all the way back from 110 to 105 over the past fortnight. Investors had previously priced in the Bank of Japan (BoJ) increasing stimulus, but the BoJ leaving policy unchanged in October encouraged the JPY to strengthen. Increased fears over the global economic outlook also increased safe-haven attraction towards the JPY. On the other side, fears over the global economic outlook raised suspicions that the Federal Reserve will delay normalizing monetary policy (raising rates). As such, the USD/JPY pulled back.
There is a wide variety of Japanese economic data released over the upcoming week, but the pair is more likely to move in accordance with how the markets react to the latest Chinese GDP and US inflation data.
In regards to the former, there are concerns the GDP figure from China will be substantially below Beijing’s 7.5% target. An economist forecasting business in London has suggested China’s GDP figure will be 6.8%, a CNNMoney survey of economists forecast 7.2%. Confirmation of a lower than expected GDP figure would likely heighten fears over not only China’s economic growth but the global economy as well. As such, the demand for the JPY could really strengthen and encourage a further USD/JPY pullback.
In reference to the now highly anticipated US inflation data, investors will be looking for guidance regarding whether the higher valued USD would have a detrimental impact on US inflation levels (as feared in FOMC Minutes). If there are no signs of that occurring yet, speculation will mount that the Fed will conclude QE as planned. As such, the USD/JPY would be expected to move to the upside. The downside scenario is that the inflation data raises fears that the Fed will continue QE and delay raising rates. If this occurs, the USD/JPY will pullback.
Both the Stochastic Oscillator and RSI are ranging at present, meaning this pair could move in either direction. If demand for the USD returns, resistance can be found at 107 and 107.586. If the pair moves towards its trendline, support is located at 106 and 105.500.
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