USD/JPY Forecast: Dovish Fed, Japan’s Machinery Orders, and US Retail Sales Impact

Highlights

• The USD/JPY tumbled by 1.77% on Wednesday, ending the session at 142.876.
• Dovish Fed projections sent the USD/JPY deep into negative territory.
• Economic indicators from Japan and US retail sales are focal points for the Thursday session.

USD/JPY Movements on Wednesday

The USD/JPY tumbled by 1.77% on Wednesday. Following a 0.48% loss on Tuesday, the USD/JPY ended the day at 142.876. The USD/JPY rose to a high of 145.994 before falling to a low of 142.629.

Core Machinery Orders and the Bank of Japan in Focus

On Thursday, core machinery orders drew investor interest early in the session. Core machinery orders for October signaled a possible shift in the demand environment. Significantly, the numbers could fuel bets on a Bank of Japan pivot from negative rates. A weak macroeconomic environment has left the BoJ hesitant about signaling a pivot from negative rates.

Core machinery orders rose by 0.7% in October vs. a 1.4% increase in September. Year-over-year, machinery orders were down 2.2% vs. a 2.2% drop in September. Economists forecast orders to decline by 0.5% in October and to fall by 5.1% year-over-year.

While the numbers drew interest, Bank of Japan forward guidance about a pivot away from ultra-loose policy remains the focal point. Recent speeches raised uncertainty about the timing of a pivot from negative rates. More decisive forward guidance would move the dial.

US Retail Sales and Jobless Claims in Focus

On Thursday, US retail sales and Jobless claims warrant investor attention. Following the dovish FOMC projections, steady initial jobless claims and a spike in retail sales could test market bets on an H1 2024 Fed rate cut.

Tight labor market conditions support wage growth and disposable income. An upward trend in disposable income and spending could fuel consumer spending and demand-driven inflation. Sustained inflationary pressures would force the Fed to keep interest rates at current levels longer.

Economists forecast initial jobless claims to hold steady at 220k in the week ending December 9. Significantly, economists expect retail sales to decline by 0.1% in November after a 0.1% fall in October.

Short-term Forecast

Near-term trends for the USD/JPY now hinge on Bank of Japan commentary about pivoting from negative rates. More decisive plans to move away from ultra-loose monetary policy would impact the appetite for the USD/JPY.

USD/JPY Price Action

Daily Chart

The USD/JPY sat below the 50-day and 200-day EMAs, sending bearish price signals.

A USD/JPY break above the 200-day EMA would support a move to the $144.713 resistance level.

The Bank of Japan and US retail sales figures are focal points for the Thursday session.

However, a fall through the $142.177 support level would bring the 140 handle and the 139.359 support level into play.

The 14-day RSI at 30.68 shows the USD/JPY on the border of oversold territory. A drop to the 142.177 support level could fuel buyer appetite.

4-Hourly Chart

The USD/JPY remained below the 50-day and 200-day EMAs, with the EMAs affirming bearish price signals.

A USD/JPY return to the 143 handle would support a move to the 144.713 resistance level.

However, a break below the 142.177 support level would bring the 139.359 support level into view.

The 14-period 4-hour RSI at 26.76 shows the USD/JPY in oversold territory. Buying support could intensify at the 142.177 support level.