USD/JPY Forecast: China Stats and US Retail Sales to Deliver 146

Highlights

• It is a busy morning for the USD/JPY, with Q2 GDP numbers from Japan in focus early in the session.
• While hotter-than-expected numbers could skew sentiment toward BoJ policy, economic indicators from China will dictate ahead of the US session.
• The near-term technical indicators are bullish, signaling a return to 146.

On Monday, the USD/JPY rose by 0.43% to wrap up the day at 145.549.

This morning, GDP numbers from Japan will draw interest. Hotter-than-expected GDP numbers could shift sentiment toward the BoJ’s ultra-loose monetary policy stance. Economists forecast the Japan economist to expand by 0.8% in Q2 versus 0.7% growth in the first quarter.

Robust economic growth requires central bank vigilance to prevent overheating. However, in the current macroeconomic environment, inflation remains the focal point, likely limiting the impact of the numbers on near-term monetary policy intentions and the Yen.

Later in the morning session, economic indicators from China need to beat forecasts to avoid a risk-off-fueled sell-off. Fixed asset investment, industrial production, retail sales, and unemployment rate numbers are out. However, we expect the retail sales and industrial production figures to have more impact.

Economic indicators from China drive risk sentiment, with China-dependent economies likely to face similar macroeconomic trends. China and the US are the biggest importers of Japanese goods.

The US Session

US retail sales and the NY Empire State Manufacturing Index will move the dial. We expect the retail sales figures to have more impact.

Economists forecast retail sales to increase by 0.4% in July versus +0.2% in June.

A jump in retail sales could force the Fed to hike rates to curb spending and eliminate the demand effect on consumer price inflation. Hotter-than-expected US retail sales would also signal further divergence between the Japanese and the US economies and respective central bank policies.

However, with the manufacturing sector accounting for less than 30% of the US economy, the NY State numbers are unlikely to influence the Fed.

USD/JPY Price Action

Daily Chart

The Daily Chart showed the USD/JPY hover above the upper level of the 144.3 – 145.0 resistance band. After the bullish Monday session, the USD/JPY remained above 50-day (141.533) and 200-day (137.568) EMAs, sending bullish near and longer-term price signals.

Looking at the 14-Daily RSI, the 66.97 reflects bullish sentiment, supporting a run at 146. However, a USD/JPY fall through the 144.3 – 145.0 resistance band would give the bears a look at sub-144.

4-Hourly Chart

Looking at the 4-Hourly Chart, the USD/JPY faces strong resistance at 145.5. The USD/JPY sits above the 144.3 – 145.0 resistance band and the 50-day (143.751) and 200-day (142.028) EMAs, sending bullish near and longer-term price signals.

A hold above the 144.3 – 145.0 resistance band and the 50-day EMA would support a breakout from 145.5 to target 146. However, a fall 144.3 – 145.0 resistance band would bring the 50-day EMA (143.751) into play.

The 14-4H RSI reading of 75.34 shows the USD/JPY in overbought territory, with buying pressure outweighing selling pressure. However, the RSI aligns with the 50-day EMA, supporting a run at 146.