USD/JPY Forecast: Stumbles as Treasury Yields Ease Ahead of Fed Member Speeches, Inflation Data

Highlights

• Treasury yields’ decline led to a dip in the USD/JPY on Tuesday.
• BOJ governor Ueda reaffirms support for stimulus.
• Investors await inflation data and speeches from Fed officials.

Overview

The Dollar/Yen, which is highly sensitive to long-term U.S. bond yields, is giving back some of Monday’s more than 1% gains, as the 10-year Treasury yield rise also slowed down in Tokyo trading after a sharp two-day climb.

The Japanese Yen came under pressure on Monday as the new Bank of Japan (BOJ) governor, Kazuo Ueda, vowed to stick with ultra-easy stimulus setting for the time being.

At 11:51 GMT, the USD/JPY is trading 133.271, down 0.331 or -0.25%. On Monday, the Invesco CurrencyShares Japanese Yen Trust ETF (FXY) settled at $69.75, down $0.93 or -1.32%.

USD/JPY Tamped Down by Declining Treasury Yields Ahead of CPI Release

On Tuesday, U.S. Treasury yields are down as investors anticipated comments from Federal Reserve officials and awaited important inflation data later in the week. Meanwhile, the move in the Treasurys is just enough to put a lid on the USD/JPY.

Prior to that, Chicago Fed President Austan Goolsbee, Philadelphia Fed President Patrick Harker, and Minneapolis Fed President Neel Kashkari are expected to speak, and investors will pay attention to their remarks for clues about the Fed’s views on inflation and monetary policy.

The release of the consumer price index (CPI) on Wednesday will provide significant information regarding the Fed’s policy direction.

Following the strong employment data released on Good Friday, which showed continued hiring by U.S. employers in March and a decrease in the jobless rate, traders now view the likelihood of the Fed raising rates by another quarter point on May 3 as 74%. Previously, the market viewed a rate hike next month as a toss-up. This news drove the USD/JPY higher on Monday.

Daily USD/JPY Technical Analysis

The main trend turned up on Monday. A trade through 130.633 will change the main trend to down.

The nearest resistance is a 50% level at 133.776, followed by a Fibonacci level at 134.752. This area stopped the rally on Monday.

The closest support is a long-term 50% level at 132.569, followed by a long-term Fibonacci level at 131.308.

Daily USD/JPY Technical Forecast

Trader reaction to the 50% level at 133.776 is likely to determine the direction of the USD/JPY on Tuesday.

Bearish Scenario

A sustained move under 133.776 will indicate the presence of sellers. If this generates enough downside momentum then look for the selling to possibly extend into 132.569.

Bullish Scenario

A sustained move over 133.776 will signal the presence of buyers. This is a potential trigger point for an acceleration to the upside with 134.752 the next likely target.