USD/JPY Fundamental Weekly Forecast – Momentum on the Side of the Sellers

The Dollar/Yen Forex pair was the biggest loser last week as buyers jumped on the long side of the Japanese Yen amid speculation the Bank of Japan was preparing to begin winding down its monetary stimulus this year.

After the initial selling spree early in the week, the move accelerated, helped by the European Central Bank minutes which suggested the central bank was preparing to join other central banks in tightening monetary policy.

The USD/JPY settled at 110.997, down 2.042 or -1.81%.

Hawkish Fed speakers, rising Treasury yields and upbeat U.S. economic data could not offset the news from the Bank of Japan and European Central Bank.

Forecast

Like the other major currencies, the price action in the USD/JPY is being driven by technical momentum and the weakening U.S. Dollar.

The Forex pair finished the week in a position to take out a key bottom at 110.836. Taking out this level with rising volume could trigger another steep break.

The main range is 98.887 to 118.658. An acceleration to the downside could lead to a test of its 50% to 61.8% retracement zone at 108.773 to 106.440.

There are no major economic reports from Japan this week, but it doesn’t matter, in my opinion, because last week’s action proves the Yen is likely to be more sensitive to remarks from the Bank of Japan. Any comments that hint of an earlier than expected withdrawal of monetary stimulus will be bullish for the Yen. The BoJ may also try to stop the Yen’s rapid rise with dovish comments.

The major U.S. report is Thursday’s Building Permits. It is expected to show a gain of 1.29 million units, down slightly from last month’s 1.30 million units.

Traders will also get the opportunity to react to the Empire State Manufacturing Index, Core Machinery Orders, Capacity Utilization and Industrial Production.

Additionally, the Fed will release is Beige Book and the Philadelphia Fed Manufacturing Index.

Traders should also pay attention to the Fed speakers. Dovish comments will continue to pressure the dollar. Bullish comments may stabilize the Greenback or encourage aggressive short-covering.