Market Overview

USD/JPY Forecast: Fed Focus Limits Free Movement

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USD/JPY is trading in a narrow range as the last full week of the year commences.
Tension towards the all-important Fed decision limits movements.
The technical picture is decidedly mixed for the pair.

USD/JPY is trading just below 113.50, not going anywhere fast. The light calendar on Monday no groundbreaking news on trade negotiations, and the anticipation towards the all-important Fed decision may limit any movements.

On the trade front, markets were happy to hear that China will be buying US soybeans and that the world's second-largest economy is willing to change its controversial China 2025 program. However, the cheer did not last for too long, not in stocks nor USD/JPY. Over the weekend we learned that Chinese home prices are struggling. The data joins the more significant decelerations in industrial output and retail sales.

The most significant event of the week is Wednesday's all-important Fed decision. A rate hike is fully priced in, but expectations about the guidance for 2019 remain wide open. The latest forecast on rates by the Fed showed three increases next year. Recent dovish comments and unimpressive economic data caused some second thoughts about only one hike or even none at all. The latest substantial release raised the stakes once again: retail sales jumped in November.

In the US, the Empire State Manufacturing Index is due later on, followed by the NAHB Housing Market Index. Both are low-tier figures, but considerable surprises could move the needle for USD/JPY.

The pair is more likely to move on headlines regarding a potential government shutdown. US President Donald Trump remains adamant about receiving funding for a wall on the US-Mexican border while Democrats and most Republicans are against it.

USD/JPY tends to move with stocks and bonds. At the moment, US bonds are slightly lower while S&P futures are marginally higher. 

All in all, the pair is looking for a new direction, and we may have to wait until the Fed decision to find out. 

USD/JPY Technical Analysis

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USD/JPY is trading within a narrow range. The Relative Strength Index on the four-hour chart is balanced at around 50 and Momentum is not showing any trend. The pair is hovering slightly above the 50 and 200 Simple Moving Averages, but this is unlikely indicative of any significant movement.

Resistance awaits at 113.70 which capped dollar/yen late last week. 114.05 capped it in late November. It is followed closely by 114.25 that was a swing high and by 114.55, the high point of the year.

Looking down, 113.15 provided support last week. Further down, 112.60 was a support line in early November. The most significant cushion is 112.20 which was a double-bottom earlier in the month.

More: USD/JPY strung out in the middle at 113.50

 

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Posted-In: Empire State Manufacturing IndexEarnings News Forex Global Federal Reserve Markets General