USDJPY – Daily Chart – 140126 – Takaichi Effect
The political uncertainty supports a cautiously bullish short-term price outlook for USD/JPY. However, potential yen interventions and the prospect of Bank of Japan rate hikes affirm the bearish medium-term projection.
Crucially, the weaker yen would increase import prices, eroding households’ purchasing power. These scenarios may force the BoJ to signal further policy tightening to strengthen the yen.
US Producer Prices and Retail Sales to Drive Dollar Demand
Later on Wednesday, US retail sales and producer prices are likely to influence market bets on a March Fed rate cut.
Economists forecast retail sales to rise 3.0% year-on-year (YoY) in November, down from 3.5% in October. Weaker consumer spending would signal a softer demand-driven outlook, supporting a more dovish Fed rate path.
Meanwhile, economists expect producer prices to increase 2.7% YoY in November, mirroring October’s rise. Softer-than-expected producer prices would raise expectations of a March Fed rate cut, weighing on demand for the US Dollar. Increased bets on a March cut would support the bearish medium-term outlook for USD/JPY.
According to the CME FedWatch Tool, the probability of a March Fed rate cut fell from 48.5% on January 6 to 25.7% on January 13. Stronger-than-expected US labor market and Services PMI data cooled expectations of a March cut.
Today’s US economic data will be key for the near-term USD/JPY price outlook. Stronger US data would signal a more hawkish Fed policy stance, strengthening the US dollar, and challenging the bearish medium-term outlook.
Nevertheless, expectations of multiple BoJ rate hikes and a new Fed Chair potentially favoring lower interest rates remain key considerations. These factors reinforce the bearish medium-term outlook for USD/JPY.
Technical Outlook: Key Levels to Watch
For USD/JPY price trends, traders should consider technicals and closely monitor the fundamentals.
Viewing the daily chart, USD/JPY trades well above its 50-day and 200-day Exponential Moving Averages (EMAs), indicating bullish momentum. While technicals remain bullish, bearish fundamentals are evolving, countering the technicals.
A drop below 157 would bring the 50-day EMA and the 155 support level into play. A sustained fall below the 50-day EMA would signal a bearish near-term trend reversal, exposing the 200-day EMA. If breached, 150 would be the next key support level.
Crucially, a sustained fall below the 50-day and 200-day EMAs would reinforce the bearish medium-term price outlook.
AloJapan.com