USD/JPY Forecast: The Middle East and US Retail Sales in Focus

Flight to Safety?

On Monday, the USD/JPY may face selling pressure as investors consider the news of Iran attacking Israel. The US dollar and Japanese Yen are safe-haven currencies. Nevertheless, investors traditionally favor the Japanese Yen over the US dollar. However, notice of the attack could limit the impact on the financial markets.

Early in the session, economic indicators from Japan drew investor interest. Machine orders declined 1.8% year-on-year in February after falling 10.9% in January. The better-than-expected numbers could influence expectations of a Bank of Japan move away from zero interest rates.

Beyond the numbers, investors should monitor Bank of Japan commentary. Central bank responses to the rising threat of a prolonged Middle East conflict could move the dial.

US Economic Calendar: Retail Sales in Focus

On Monday, the NY Empire State Manufacturing Index and retail sales will be in focus. US retail sales figures will likely impact the USD/JPY more amidst falling bets on a June Fed rate cut.

Economists forecast retail sales to increase by 0.3% in March month-on-month. In February, retail sales rose by 0.6%.

Better-than-expected numbers could further sink expectations regarding a June Fed rate cut. Upward consumer spending trends could fuel demand-driven inflation. A higher-for-longer Fed rate path could raise borrowing costs, reducing disposable income. Downward trends in disposable income could curb consumer spending, dampening demand-driven inflation.

Beyond the numbers, investors should track FOMC member chatter. FOMC member Mary Daly is on the calendar to speak. Reactions to the Iran attack and possible implications for monetary policy could move the dial.

According to the CME FedWatch Tool, the probability of a June Fed rate cut fell from 50.8% to 26.9% in the week ending April 12. Recent Fed speeches and US inflation numbers impacted investor bets on a June Fed rate cut.

Short-term Forecast

Near-term trends for the USD/JPY hinge on news updates from the Middle East and central bank commentary. A flight for safety would likely overshadow the influences of economic data and impact buyer demand for the USD/JPY.

USD/JPY Price Action

Daily Chart

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

A USD/JPY return to the April 12 high of 153.384 would support a move to the 154 handle.

News updates from the Middle East, central bank commentary, and US retail sales need consideration.

Conversely, a USD/JPY drop below the 152.500 handle could give the bears a run at the 151.685 support level.

The 14-day RSI at 72.50 shows the USD/JPY in overbought territory. Selling pressure could intensify at the April 12 high of 153.384.