USD/JPY Forecast: Dollar/Yen Slides as US Default Concerns Mount

USD/JPY Highlights

• Dollar/Yen under pressure due to U.S. default concerns
• Debt ceiling standoff continues without resolution
• Traders focus on borrowing limit issue, impacting USD value

USD/JPY Overview

On Tuesday, the Dollar/Yen is experiencing downward pressure due to concerns about a potential U.S. default. The standoff between Democrats and Republicans regarding the debt ceiling increase has yet to show any signs of being resolved, contributing to the negative sentiment.

At 07:05 GMT, the USD/JPY is trading 135.783, down 0.303 or -0.22%. On Monday, the Invesco CurrencyShares Japanese Yen Trust ETF (FXY) is at $68.44, down $0.18 or -0.26%.

USD Traders Switch Focus to Debt Ceiling

Last week, the U.S. Dollar was supported by increased demand from traders seeking safe-haven currencies due to concerns over China’s slow recovery from Covid-19. Additionally, an unexpected rise in U.S. consumer inflation expectations led to speculation that the Federal Reserve might raise interest rates in June, further boosting the greenback.

However, this week, traders are primarily focused on the imminent borrowing limit issue. Treasury Secretary Janet Yellen has emphasized that the limit could be reached as early as June 1, prompting investors to prioritize this concern.

Optimistic Biden Awaits Debt Agreement

President Joe Biden remains optimistic that an agreement can be reached before an upcoming meeting with congressional leaders later today. However, Republican House of Representatives Speaker Kevin McCarthy stated that there are significant differences between the two sides and they have not made much progress towards a resolution yet.

USD Volatility Amid Debt Concerns

The U.S. dollar has been experiencing volatile price movements in the past few days, reacting strongly to economic data. Traders are also uncertain about how the growing concerns over the debt ceiling will impact the value of the USD. Historically, the Japanese Yen tends to benefit in such situations, but there have been instances where global market disruptions caused by the U.S. have actually led to a stronger dollar.

Retail Sales, Central Bank Speeches on Tap

At 12:30 GMT on Tuesday, the latest economic data on April’s retail sales will be released, providing insights into consumer spending. According to a survey conducted by Dow Jones, economists expect a 0.8% increase.

Several central bank officials will speak today. Michael Barr, the Federal Reserve Vice Chair for Supervision, will testify before the House Financial Services Committee at 14:00 GMT. The hearing is titled “Oversight of Prudential Regulators.” In addition, Fed Presidents Raphael Bostic (Atlanta), John Williams (New York), and Austan Goolsbee (Chicago) will also be participating in various events.

Technical Analysis

The USD/JPY is currently trading well above the daily technical pivot point of $134.518. The main trend is up, but momentum may be stalling.

A return of buyers could push the price above the recent top at $137.913. And possibly reaching resistance (R1) at $138.452. Conversely, a pivot failure may lead to weakness and a possible decline to the nearest support (S1) at $132.471.

Overall, the direction of USD/JPY is dependent on how traders respond to the pivot at $134.518.

Resistance & Support Levels