USD/JPY Forex Technical Analysis – US Retail Sales Report Sets the Tone

The Dollar/Yen is slightly higher early Tuesday as investors await the release of a slew of U.S. economic reports including retail sales and industrial production.

The futures markets are priced for consecutive 50 basis point hikes from the Federal Reserve in June and July and for the benchmark U.S. interest rate to reach 2.75% by year’s end. Today’s reports could confirm those expectations or cast doubts over whether the economy is strong enough to withstand the Fed’s aggressiveness.

At 06:50 GMT, the USD/JPY is trading 129.340, up 0.230 or +0.18%. On Monday, the Invesco CurrencyShares Japanese Yen Trust ETF (FXY) settled at $72.54, up $0.13 or +0.18%.

Today U.S. retail sales report, due to be release at 12:30 GMT, is expected to show that retail sales increased by 1.0% during April and core retail sales rose by 0.4%. The report will reveal information on how consumers are spending in the wake of inflation hovering near a 40-year high.

A strong report will justify the aggressive tone from the Fed. Treasury yields are likely to rise on the news, which would give the USD/JPY an added boost.

A weak report could be an early sign of economic weakness. Although it probably won’t derail the Fed’s plans for 50-basis point hikes in June and July, it could put a cap on future rate hike expectations. This may weaken the USD/JPY, but more than likely put a lid on any major price advances from current levels.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart, however, momentum is trending lower. A trade through 126.945 will change the main trend to down. A move through 131.348 will signal a resumption of the uptrend.

The minor range is 126.945 to 131.348. The market is currently straddling its pivot at 129.147.

Support is a pair of 50% levels at 127.410 and 126.316.

Daily Swing Chart Technical Forecast

Trader reaction to 129.147 is likely to determine the direction of the USD/JPY on Tuesday.

Bullish Scenario

A sustained move over 129.147 will indicate the presence of buyers. If this move creates enough upside momentum, we could see a surge into the minor top at 139.813, followed by the main top at 131.348.

Bearish Scenario

A sustained move under 129.147 will signal the presence of sellers. If this move gains any traction then look for the selling to possibly extend into the nearest support cluster at 127.520 – 127.410.

Side Notes

The reaction by U.S. Treasury yields to the retail sales and industrial production reports on Tuesday will ultimately determine the direction of the USD/JPY.  Basically, higher yields, higher USD/JPY and lower yields, lower USD/JPY.