Japanese Yen Forecast: Neutral
- USD/JPY Neutral: The pair settles into trading range after NFP print
- GBP/JPY Neutral: at a decision point – testing the LT trendline and potentially the 50 SMA
- Scheduled risk eases off in the coming week with US services PMI and Japanese GDP the standouts
- The analysis in this article makes use of chart patterns and key support and resistance levels. For more information visit our comprehensive education library
USD/JPY Settles into Trading Range After NFP Print
NFP data revealed 187k jobs added to the US economy in August, with average earnings easing and the unemployment rate stepping up a gear. The rise in the unemployment rate however, was mainly due to an influx of job seekers back into the labour force, inflating the number of those now classified as unemployed.
An immediate dollar selloff later reversed those losses as markets focused on the matter at hand – a resilient labour market. Fewer people are quitting and fewer jobs are available but we haven’t yet seen hiring shrink. Something else to note about the greenback is that markets pulled back the probability of another 25-bps hike this year and also brought forward the anticipated date of the first Fed rate cut from June to May.
In the week to come, market participants are likely to assess USD/JPY price action within the narrow trading range from 145.00 to 16.50. USD drivers are easing as fundamental data softens and yields pull back. At the same time yen strength appears unlikely despite improving fundamental data which has sparked conversations about when the BoJ might consider normalizing monetary policy. Bank of Japan officials clarified that more sustained economic and price growth is needed to arrest a deflationary mindset that has become firmly entrenched in the psyche of Japanese citizens.
Therefore, very little stands in the way of seeing USD/JPY test 150 once again. The big question is whether the USD rally has the legs to get the pair there. Support comes in at 145 followed by the Friday spike low of 144.40, then 142.25. Resistance at channel resistance of 146.50, then the big 150.
USD/JPY Daily Chart
Source: TradingView, prepared by Richard Snow
Data from the CFTC commitment of traders report highlights the growing divergence between speculative shorts and longs with shorts drastically outnumbering longs. Sentiment has not shifted, meaning yen weakness appears to remain the status quo until such time as the Japanese Finance Minister Suzuki judges it to be unfavourable once more. A weaker yen benefits Japanese exporters but hurts local businesses that are heavily reliant on imports.
Speculative Sentiment (Hedge Funds, Money Managers) Net-Positioning
Source: Refinitiv, CFTC CoT report prepared by Richard Snow
| Change in | Longs | Shorts | OI |
| Daily | 8% | 7% | 7% |
| Weekly | -26% | 28% | 0% |
GBP/JPY at a Crucial Juncture – Lack of Momentum May Stymie Breakdown
UK yields, much like their US counterparts, experienced some easing – providing an opportunity for GBP/JPY to drop lower. With the US looking less unlikely to bring out that final 25 bps hike, UK interest rate markets have been reassessing their prior lofty ambitions of seeing the UK bank rate above 6%, with them now around 5.65%.
GBP/JPY has eased back towards the long-term trendline, a level it currently tests as Friday draws to a close. The trendline also coincides with the July swing high at 184.00, with the 50 simple moving average not far below at 182.90. In a week where UK and Japanese data remain scarce, even if we get a trendline break from here, there may not be sufficient bearish momentum to sustain the move – hence the neutral outlook.
GBP/JPY Daily Chart
Source: TradingView, prepared by Richard Snow
Risk Events in the Week Ahead
There is a notable drop off in the quality and quantity of scheduled event risk next week. Apart form central bank meetings in Australia and Canada, US services PMI data stands out from the list. After a downward revision in second quarter US GDP, markets will be interested to find out if sentiment data aligns with reigned in growth data. Japanese GDP growth at the end of the week is forecast to print at 5.5% after recent retail showed that local consumption remains robust.
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--- Written by Richard Snow for DailyFX.com
Contact and follow Richard on Twitter: @RichardSnowFX
