USD/JPY Fundamental Daily Forecast – Not Expecting Much Movement Today, but 112.782 Will Control the Price Action

The Dollar/Yen broke sharply on Thursday, following through to the downside for a fourth session since posting a potentially bearish closing price reversal top at 113.745 on December 12. After reaching an intraday low at 112.658, the Forex pair rebounded in response to higher U.S. Treasury yields.

The USD/JPY settled at 112.858, down 0.466 or -0.41%.

In the U.S. on Thursday, weekly unemployment claims came in higher than expected at 245K, matching last week’s read. Traders were looking for 240K.

The Goods Trade Balance rose more than expected to -69.7 billion. The forecast was for a read of -67.7 billion. Last month’s figure was 68.1 billion.

Preliminary Wholesale Inventories were worse than expected, increasing 0.7%. The forecast was for an increase of 0.4%. Last month’s number was revised to the better at -0.5%.

Finally, Chicago PMI posted a robust 67.6, beating the 62.2 forecast and last month’s 63.9.

U.S. government debt futures closed lower on Thursday and yields rose in response to the economic data. The news helped widen the spread between U.S. Government Bonds and Japanese Government Bonds, helping to limit the USD/JPY’s earlier losses.

Early in the session, the Forex pair was driven lower by solid economic data from Japan. Preliminary Industrial Production came in at 0.6%, beating the 0.5% estimate. Retail Sales were up 2.2%, better than the 1.1% estimate and a marked improvement from the previous read of -0.2%. Bank of Japan Core CPI was up 0.6% versus a 0.5% estimate.

The Bank of Japan Summary of Opinions showed that some Bank of Japan board members called for a debate about raising interest rates or lowering purchases of exchange-traded funds in response to the improving outlook.

Forecast

The USD/JPY is trading lower early in the session on Friday. U.S. equities are higher during the pre-market session, perhaps limiting the downside pressure. Treasury futures are flat.

We’re not looking for much movement today due to the long upcoming holiday week-end. Volume is also expected to come in well-below average.

The key first key price level to watch today on the charts is the 50% level at 112.782. This price may act like a pivot.

Holding above 112.782 will indicate the presence of buyers. A sustained move under this level will signal the presence of sellers. This could drive the USD/JPY into 112.291 to 111.947, completing the objective of the closing price reversal top.

Taking out the bottom at 112.027 will indicate the selling pressure is getting stronger. This could trigger an acceleration to the downside.