USD/JPY Forex Technical Analysis – Rangebound Due to Uncertainty Over US Rates

The Dollar/Yen is trading nearly flat on Thursday after giving up earlier gains. The price action suggests consolidation ahead of today’s US initial claims report, which could reveal clues about the strength of the country’s labor market. We could also be looking at the first signs of position-squaring ahead of Tuesday’s major U.S. consumer inflation report.

At 07:08 GMT, the USD/JPY is trading 131.364, down 0.079 or -0.065. On Wednesday, the Invesco CurrencyShares Japanese Yen Trust ETF (FXY) settled at $70.89, down $0.21 or -0.29%.

The price action also reflects uncertainty about U.S. interest rates. On Tuesday, Federal Reserve Chairman Jerome Powell reiterated his less-hawkish remarks on “disinflation”.

But on Wednesday, New York Fed President John Williams said moving to a federal funds rate of between 5.00% and 5.25% “seems a very reasonable view of what we’ll need to do this year in order to get the supply and demand imbalances down.”

Williams’ hawkish tone was also shared by Fed Governor Lisa Cook, and Minneapolis Fed leader Neel Kashkari, who said earlier in the week that he believes the federal funds rate will need to go as high as 5.4% or even further if the data called for it.

Looking Ahead…

On Thursday, investors will be keying in on the U.S. initial jobless claims report, due to be released at 13:30 GMT. This report could move the market since the strength of the U.S. labor market does influence Fed activity. U.S. unemployment claims are expected to have risen to 191K from 183K in the week-ending Feb. 4.

Daily USD/JPY Technical Analysis

The main trend is down according to the daily swing chart. However, momentum is trending higher. A trade through 134.775 will change the main trend to up. A move through 127.227 will signal a resumption of the downtrend.

The minor trend is up. This is controlling the momentum. Taking out 132.900 will reaffirm this trend.

The nearest support is a pair of 50% levels at 131.001 and 130.064. The closest resistance is a retracement zone at 132.700 to 133.992. This zone stopped the rally at 132.900 on Feb. 6.

Daily USD/JPY Technical Forecast

Trader reaction to the 50% level at 131.001 is likely to determine the direction of the USD/JPY on Thursday.

Bullish Scenario

A sustained move over 131.001 will indicate the presence of buyers. If this move is able to generate some upside momentum then we could see a retest of the resistance cluster at 132.700 – 132.900.

Bearish Scenario

A sustained move under 131.00 will signal the presence of sellers. This could trigger a quick break into another pivot at 130.064.

Side Notes

Like we wrote earlier, we’re not looking for any major activity in the market until Tuesday’s U.S. consumer inflation report so we expect to see a further consolidation of prices.