This week’s economic indicators are key after BoJ Governor Kazuo Ueda left rate hikes on the table during last week’s press conference. Governor Ueda stated the Bank would continue hiking rates if economic momentum keeps inflation on a sustainable move to the 2% target.
USD/JPY Outlook: High Volatility Driven by Geopolitics and Economic Indicators
- Bullish Yen Scenario: Upbeat Japanese data, hawkish BoJ rhetoric, or an Iran response to US attacks could send USD/JPY toward 140.
- Yen Carry Trade Unwind Risks: A USD/JPY drop below the September 2024 low of 139.576 could accelerate the Yen Carry Trade Unwind.
- Bearish Yen Scenario: Weaker Japanese economic indicators, dovish BoJ cues, or de-escalation in the Middle East conflict may send the pair toward 150.
US Services PMIs, Consumer Sentiment, GDP, and Inflation to Drive Dollar Demand
In the US, consumer sentiment, GDP, and the crucial US Personal Income and Outlays Report will drive US dollar appetite and USD/JPY trends.
Key events include:
- S&P Global Services PMI (June 23): drop from 53.7 in May to 52.9 in June.
- CB Consumer Confidence Index (June 14): to rise from 98 in May to 99.1 in June.
- US Q1 GDP (June 26): contract by 02% quarter-on-quarter in Q1 after expanding 2.4% in Q4.
- Core PCE Price Index (June 27): to increase 2.6% year-on-year in June, up from 2.5% in May.
Weaker-than-expected Services PMI, consumer sentiment, and softer inflation may boost bets on a Q3 Fed rate cut, impacting US dollar demand. Conversely, better-than-expected numbers may sink expectations of a near-term Fed move. We expect the Core PCE Price Index data to be key.
While the data will influence sentiment, trade developments, and the Middle East conflict will remain key drivers.
Potential Price Scenarios:
- Bullish US Dollar Scenario: Upbeat US data, hawkish Fed signals, and easing geopolitical tensions may drive USD/JPY toward 150.
- Bearish US Dollar Scenario: Rising US recession fears, dovish Fed guidance, and escalating geopolitical tensions could push USD/JPY toward 140.
Short-term Forecast:
USD/JPY’s near-term outlook hinges on developments in the Middle East, trade headlines, economic data, and central bank chatter. That said, trade developments and geopolitical risks will likely carry the greatest market weight in the near term.
USD/JPY Price Action
Daily Chart
On the daily chart, the USD/JPY trades above the 50-day Exponential Moving Average (EMA) while remaining below the 200-day EMA. The EMAs send bullish near-term price signals while maintaining a bearish longer-term technical outlook.
A break above the 50-day EMA could signal a move toward the 200-day EMA. A sustained move through the 200-day EMA may open the door to retesting the 149.358 resistance level.
On the downside, a break below the 50-day EMA could expose the 142.5 level. If selling pressure intensifies, the pair could test support at the crucial 140 psychological level and the September 2024 low of 139.576.
The 14-day Relative Strength Index (RSI) sits at 57.82, suggesting USD/JPY has room to climb to 150 before entering overbought territory (RSI > 70).