USD/JPY Forecast: Fed Chair Powell’s Speech Crucial for Trends

Highlights

• The USD/JPY rose by 0.16% on Tuesday, ending the session at 150.314.
• Shifting sentiment toward Fed interest rate goals drove demand for the US dollar.
• On Wednesday, the Reuters Tankan Index will garner investor interest before Fed Chair Jerome Powell’s speech.

Tuesday Overview of USD/JPY Movements

The USD/JPY rose by 0.16% on Tuesday. After a 0.50% gain on Monday, the USD/JPY ended the session at 150.314. The USD/JPY fell to a low of 149.926 before rising to a session high of 150.691.

Reuters Tankan Index in the Spotlight

On Wednesday, the Reuters Tankan Index figures for November will draw investor interest. The monthly survey canvases 200 manufacturers and 200 non-manufacturers to assess business conditions.

Economists forecast the Index to slip from 4 to 3. A downward trend would align with the Bank of Japan’s (BoJ) concerns about the economic outlook.

This week, Bank of Japan Governor Ueda spoke about needing ultra-loose to navigate an uncertain economic outlook. Weaker numbers would support the BoJ’s commitment to ultra-loose.

Fed Chair Jerome Powell in the Spotlight

On Wednesday, Fed Chair Jerome Powell will be in focus. Recent labor market indicators have signaled a softening in labor market conditions. Unit labor costs and the US Jobs Report fueled speculations about the Fed ending its rate hike cycle and the possibility of a Fed rate cut in June 2024.

However, uncertainty resurfaced this week as US Treasury yields retreated from last week’s highs.

Notably, the recent US labor market numbers came after the FOMC press conference. Powell talked about needing softer labor market conditions to support price stability. Affirmation that labor market conditions have softened sufficiently would refuel bets on the Fed ending its rate hike cycle. Significantly, the markets would also raise the chances of a June 2024 rate cut.

While Fed Chair Powell will take center stage, investors should monitor other Fed speeches. Fed Vice Chair John Williams and FOMC voting members Philip Jefferson and Michael Barr will also speak on Wednesday.

Short-term Forecast

Near-term trends for the USD/JPY will hinge on Fed speeches and the global macroeconomic environment. A hawkish stance from Fed Chair Powell and indications of a weakening Japanese economy would likely support further gains for the USD/JPY. On the other hand, if the Fed adopts a dovish tone, it could lead to a potential decline towards 145.

USD/JPY Price Action

Daily Chart

The USD/JPY sat above the 50-day and 200-day EMAs, affirming bullish price signals. A USD/JPY return to 150.500 would support a move to the 151.889 resistance level.

Economic indicators from Japan and Fed Chair Powell will be the focal point on Wednesday.

A break below the 150.201 support level would give the bears a run at the 50-day EMA and the 148.405 support level.

The 14-day RSI at 54.97 suggests a USD/JPY return to 151 before entering overbought territory.

4-Hourly Chart

The USD/JPY holds above the 50-day and 200-day EMAs, affirming bullish price signals.

A USD/JPY move through the Tuesday high of 150.691 would give the bulls a run at 151 and the 151.889 resistance level.

However, a break below the 50-day EMA would bring the 200-day EMA into play.

The 14-period 4-hourly RSI at 53.64 indicates a USD/JPY return to 151 before entering overbought territory.